The U.S. economy looks stronger. The government is unexpectedly cutting taxes. The Fed is facing stiff political criticism at home and abroad. In part as a result of these developments, the very long-term interest rates the Fed was trying to keep down are rising.
Does this change the Fed’s conviction about the “quantitative easing” program, also known as QE2? The answer in short: If the Fed had known in November what it knows now, it would have made a tough decision even harder, but there’s a good chance it would have proceeded anyway. Moreover, it’s unlikely to change course now unless there is a much bigger improvement in the economic outlook or uptick in inflation.” Read more.
“For Tough Fed Call, Even Hindsight Is Not 20/20”
Wall Street Journal, December 27, 2010.