It was virtually inconceivable that the US Federal Reserve would not launch a new round of quantitative easing -- nicknamed QE2 -- on Wednesday. The central bank had thoroughly prepared the ground for the monetary stimulus, with Ben Bernanke, its chairman, talking of "a case for further action", and William Dudley, president of the New York Fed, saying: "The current situation is wholly unsatisfactory."
Equity prices had rallied, expectations of future inflation had risen and the dollar had fallen in expectation of QE2. Inaction by the Fed would have risked a sudden reversal of these moves and a catastrophic loss of market confidence.
But the Fed still had decisions to make. It had to decide how much to buy "up front"; it had to decide how fast to buy assets. Most crucial of all, it had to decide what to signal to markets about how big QE2 could eventually become.
Read More:http://edition.cnn.com/2010/BUSINESS/11/03/fed.quant.easing.ft/index.html
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