Bold but risky

The US Federal Reserve Bank has lowered its interest rates to between 0 and 0.25 per cent. This is a decisive move, but a risky one, writes the Financial Times.

Financial Times

... Like the policies followed by the Bank of Japan [in 2001] ... the Fed plan involves printing lots of currency. And as [chairman Ben] Bernanke once famously said: “sufficient injections of money will ultimately always reverse a deflation”. But this is not a free lunch. The Fed has pledged to keep an easy policy for a sustained period in order to keep long-term rates low, but it cannot ignore its mandate for stable prices.

As growth returns, inflation might come back with a vengeance. ... But at least the Fed has scope to play this game. First, the dollar could do with falling, particularly against the currencies of surplus countries. The dollar’s role as the world reserve currency gives further breathing space. Other central banks will be praying that these daring measures work — not least because few of them have the room to copy its example.