There is growing debate over whether another round of quantitative easing (QE2) will ease unemployment.
In an interview with the Financial Times, Philadelphia Fed President Charles Plosser set out guidelines for more stimulus. He said: "I think that before we engage in further quantitative easing, we need to be very clear about what it is we are trying to do, how we're going to go about doing it, how we're going to measure whether we're effective at it or not, and how we're going to communicate that."
The debate within the Fed is whether and how more stimulus will ease unemployment, which is now near 10%. Let's face it, here we are nearly two years into the recovery and unemployment has risen instead of fallen. This is after the Fed pledging or spending $12.2 trillion to bail out a handful of bankers.
The public wants to hold the Fed accountable for this next round of stimulus. They won't stand for the Fed simply buying more treasuries without a clear end goal.
Fed president Ben Bernanke has made it clear that he wants to avoid deflation at all costs. What really does that mean? It means that Bernanke wants to create more inflation. That means higher prices across the board. The key question is, can Americans tolerate more inflation?
Another voice of reason, New York Fed President William Dudley, wants the Fed to specify the percentage of inflation it intends to create.
Plosser is concerned that low interest rates will not necessarily bring down unemployment. He says that long-term rates have already come down 100 basis points, so what is the need to bring them down another 20 basis points? He also worries that the Fed will not be able to pull all this money back in when the time comes.