Sev­eral weeks ago, the Fed­eral Reserve decided not to cut back, or taper as the finance mavens say, the billion-​​dollar bond buying pro­gram known as quan­ti­ta­tive easing, which is a euphemism for printing money. A gradual reduc­tion of QE had been expected since June, when Fed chairman Ben Bernanke said the economy was get­ting stronger and he might reduce the monthly pur­chases by the end of the year.

But the Fed got cold feet and changed its mind because its leaders don’t believe that eco­nomic activity and labor market con­di­tions are strong enough to merit reducing the bond pur­chases. Eco­nomic growth is lack­luster. The unem­ploy­ment rate is too high, labor force par­tic­i­pa­tion is at a 34-​​year low and too many newly cre­ated jobs are low paying and/​or part time. Con­se­quently the Fed will con­tinue buying $85 bil­lion of trea­sury and mort­gage bonds each month and remain com­mitted to holding short-​​term rates near zero at least so long as the unem­ploy­ment rate remains above 6.5 percent.

So the training wheels stay on the bicycle and con­tinue to feed an addic­tion to cheap money.

After five years of depending on a monthly injec­tion of liq­uidity, it may well be that QE will become a per­ma­nent tool of the Fed for man­aging the busi­ness cycle and garden variety reces­sions. Since it began in the Pale­o­zoic era, circa late 2008, the Fed has hoped that QE would stim­u­late eco­nomic growth and hiring by holding down interest rates and encour­aging house­holds and busi­nesses to spend and invest.

 

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