Goldman Sachs Defends The Fed and Bernanke on QE2

Goldman Says Bernanke Engineers `Substantial Pickup’

By Wes Goodman – Nov 8, 2010 6:55 AM ET
Photographer: Tomohiro Ohsumi/Bloomberg

bloomberg.com Goldman Sachs Group Inc. defended Federal Reserve Chairman Ben S. Bernanke’s decision to pump money into the U.S. economy after officials in Germany, China and Brazil criticized the plan.

The move will spur gross domestic product growth and reduce the risk of deflation, Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. Because the Fed’s target for overnight loans between banks is near zero, the central bank is doing “the next best thing,” according to Goldman, one of the 18 primary dealers that are authorized to trade directly with the central bank.

“The widespread hostility to the Fed’s actions is misplaced,” Hatzius wrote. “Downside risks to the economic outlook have declined significantly. U.S. inflation is unlikely to become a problem for years.”

Bernanke on Nov. 6 defended the central bank’s decision last week to buy an additional $600 billion of Treasuries and said he dismissed the idea that it will increase prices to higher levels than policy makers prefer. German Finance Minister Wolfgang Schaeuble said Nov. 5 in Berlin that the Fed’s move was “clueless.”

“I have rejected any notion that we are going to raise inflation to a super-normal level in order to have effects on the economy,” Bernanke said in a panel discussion at a Fed conference in Jekyll Island, Georgia. “It’s critical for us to maintain inflation at an appropriate level.”

‘Risks for Everyone’

Schaeuble said the Fed’s decision won’t revive growth….

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