Forex News – Bullard hints on QE3 if inflation eases

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Expectations are growing for more Fed quantitative easing after St. Louis Fed President James Bullard said in an interview with a Japanese daily newspaper, Asahi, that the U.S. Federal Reserve could launch a third round of quantitative easing (dubbed QE3) depending on upcoming economic data. The central bank needs to first make certain that a growth scenario will continue and that inflation has eased.

During the upcoming Fed policy meeting in September that has been extended from one day to two days, policy makers will need to confirm whether its economic outlook is still on track and weigh the best options if additional easing is needed.

Expectations are growing that the central bank could ease policy after notes released from the august 9 FOMC meeting showed some policymakers pressed for strong measures to stimulate the faltering U.S. economy.

In his interview to Asahi newspaper, Bullard said that “Depending on future economic data QE3 is one choice, but we need to gather information about how the economy will perform in the second half of the year.”

“Before any moves, I would like to confirm that inflation is easing,” he added.

In the prior QE2 which ended in June, the Fed has a $600 billion quantitative easing bond-buying program.

If the Fed embarks on another quantitative easing program to buy government bonds, this will flood the system with dollars, consequently weakening the value of the dollar.