Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

U.S. Federal Reserve chairman Ben Bernanke testifies about monetary policy before the House Financial Services in Washington last February.

JONATHAN ERNST/Reuters

The economic data out of the United States is eerily reminiscent of Japan in the 1990s, with 10-year U.S. bond yields being at their lowest level in two centuries, negative stock returns for the year, falling oil prices and stagnant job growth.

If the United States is going to avoid having a Japanese-style lost decade, the Federal Reserve needs to act in far more dramatic fashion than it has previously during Ben Bernanke's tenure.

Asset markets showed that the previous QE2 had a stimulative impact on the economy. However, the program was not sustained long enough and there was no clear signal given to markets as to what, exactly, the Fed was trying to accomplish. Neither was there any indication to how permanent the increase in the money supply would be.

Story continues below advertisement

The odds of the Fed instituting another round of quantitative easing QE3 are up to 50 per cent. Since this probability is already baked into current asset prices, the next program will have to be particularly bold if it is to make a difference.

The Fed needs to avoid making the same mistakes it made under QE2. The Fed needs to go a lot further, a lot faster, and be clearer in its intentions. And make no mistake, the Fed can do so, if it wishes. The idea that the Fed has done all it can do is without merit, though under current U.S. laws there are some limitations.

There is some concern that doing so would cause runaway inflation. But where is the evidence for this belief? Inflation hawks warned us in 2009 that low U.S. interest rates would cause a "double digit inflation in the next two or three years." It didn't happen, of course, and the market believes it will not happen in the future. Current U.S. inflation is at 2.3 per cent, with the bond market predicting that inflation in the U.S. will average 1.38 per cent over the next decade. U.S. 30 year bonds have yields less than 2.6 per cent, forecasting a three-decade period of very low inflation.

The Federal Reserve needs to announce an explicit goal such as expected nominal GDP growth or Cleveland Fed inflation expectations and commit to continually adjusting the money supply to maintain that level. If Mr. Bernanke is unable or unwilling do so, he needs to resign.

Mike Moffatt is an Assistant Professor in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business – Western University. Mike also does private sector consulting for the chemical industry and can be found on Twitter at https://twitter.com/#!/MikePMoffatt.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies