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Federal Reserve Board QE2 - $600 billion, $75 billion at a time...

According to the Fed, "To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

$600 billion is $100 billion larger than anticipated and $75 billion per month seems reasonable. This is an appropriate response and stands every chance of being effective, especially since economic activity has been strengthening in the weeks leading up to this announcement.

From a social investing perspective, the Fed's new focus on employment (as opposed to inflation) is a welcome change. Monetary policies that primarily seek to limit inflation risk (inflation targeting) tend to serve the needs of asset holders, since inflation first impacts and reduces asset values. These type of asset focused monetary policies are inappropriate and ineffective in the current, ongoing crisis. Why? With a record number of foreclosures, there are fewer and fewer asset holders. Income inequality is increasing rapidly as assets are being concentrated in fewer and fewer hands.

A concern with an "increase in long-term inflation expectations that could destabilize the economy" is misplaced. The larger, more immediate and significant risk for society and the economy resides in the possibility of an increase in both short and long-term unemployment, since this could destabilize both the economy and the political system (as we saw last night). Better to seek to increase social return/benefits by putting people in a position to acquire assets. This is done through employment.

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