Washington Gridlock Could Push Fed To Act On Economy With QE3

Gridlock in Washington is convincing more economists that the Federal Reserve may have to ride to the economy’s rescue once again, perhaps with a new trillion-dollar-plus stimulus effort.

The failure of the Congressional deficit “super committee” this week, the prospect of continued tax, budget and policy standoffs in Washington through the 2012 election, and the pending expiration of several legislated stimulus provisions have increased the likelihood the Fed could soon launch another round so-called “quantitative easing,” to try to push down longer-term interest rates to stimulate economic growth, the economists said.

The Fed executes “QE” with big purchases of government bonds and other securities; it has launched two previous QE rounds totaling about $2 trillion. The Fed has said more QE remains a policy option for stimulating the economy and stronger job creation. The program likely would be designed to push down mortgage rates in particular, to try to jumpstart the struggling housing market.

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