This week’s meeting of the US Federal Reserve’s monetary policy committee will be one of the most important in decades as it prepares to launch a new round of quantitative easing.
It will not be a “saving the world on a Sunday night” occasion like the meetings during the financial crisis, but that only adds to its historical significance. The world’s most important central bank is about to use quantitative easing as a routine instrument of monetary policy for the first time.
The goal of QE2 – the nickname for this new round of easing – is to push down long-term interest rates by buying long-term Treasury bonds. On its success rests both the reputation of Ben Bernanke, the Fed chairman, and the chances that the US economy can avoid a decade of weak growth. At this week’s meeting, on Tuesday and Wednesday, the Fed’s rate-setting open market committee will assess just how badly it expects to miss its dual mandate of maximum employment and stable prices.