Quantitative Easing Won’t Turn Economy Around by Huge Amount

WSJ: Former Federal Reserve Vice Chairman Donald Kohn, who retired from the Fed two months ago and is now at the Brookings Institution think tank in Washington, D.C., says that if the Fed—as markets widely anticipate—decides this week to launch a new round of bond-buying, it will have “some benefit” but won’t “instantly and by a huge amount turn the economy around.” The U.S. central bank is widely expected to announce a new round of bond purchases, known as quantitative easing, or QE, on Wednesday, Nov. 3, after a two-day policy meeting. The following is a Q&A with the former Fed official:

WSJ: Would QE be effective?

Donald Kohn: We’ve already seen some benefits in financial markets over the past two months—to some extent [since Fed Chairman Ben Bernanke raised the possibility in a speech at Jackson Hole at the end of August.] It’s been one of the factors bolstering equity prices and lowering medium and long-term rates. I don’t think that anything they will end up doing will instantly and by a huge amount turn the economy around. But it could help on the margin in what is an unsatisfactory situation. If they go ahead and do it, I expect some benefit.