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Bob Moon: This morning, central bankers around the world are grappling with a dilemma. Should they ease up on their already-relaxed lending policies, to try giving the global economy a much-needed jolt? Today, central bankers in Tokyo decided to hold their interest rates steady. Now, the focus shifts to our own central bank. Fed policymakers meet today and like Japan, our interest rates have hit bottom. So where do they go from here? Marketplace’s Nancy Marshall Genzer takes a look.
Nancy Marshall Genzer: Interest rates have been near zero since the financial crisis, but the economy seems mired in the doldrums. That’s why there’s speculation the Fed is going to try something called quantitative easing. It’s a way for the Fed to pump money into the economy by taking advantage of the trading relationships it has with the big banks. The Fed buys different types of bonds from a bank, and to pay for them, the Fed just credits the bank’s account.
Ken Kuttner: It just says, “Here, Citigroup. I want to buy a million dollars of treasury securities. I’ll just credit your account.” You know, it can basically just create that money out of thin air.
That’s former Fed economist Ken Kuttner. He says the Fed just adds some zeros to the bank’s account. And that’s why some people say quantitative easing is just the Fed “printing money”. No actual cash changes hands. Vincent Reinhart is another former Fed economist:
Vincent Reinhart: So the Fed doesn’t have a printing press in the basement. It has something better.
Problem is, printing more money now could end up making our dollars worth less down the road.
In Washington, I’m Nancy Marshall Genzer for Marketplace.
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