We invited readers to send questions this week to Martin Wolf, the FT’s chief economics commentator. Here is the fourth question, from Andrew Flowers of Atlanta, Georgia. Martin’s response is below.
Andrew Flowers: Why is the Federal Reserve refusing to do more to stimulate aggregate demand? That is, why hasn’t quantitative easing (QE) been expanded? Ben Bernanke would probably answer that current limits on QE are to insure inflation expectations are well-anchored. But do you believe inflation expectations would become unanchored if the Fed expanded QE?
Martin Wolf: You have answered your own question, I think. The Fed is walking a tightrope between doing too little and watching the economy go back into recession and doing too much and so igniting a serious upsurge in inflationary expectations. I think they (and the fiscal authorities) are doing too little rather than too much. But I recognise that this is a matter of fine judgement.