The U.S. economy is not ready to stand on its own, therefore the Federal Reserve should “keep the pedal to the metal” and continue quantitative easing (QE) well into 2015, Nobel Prize winning economist Paul Krugman tells Yahoo.
Krugman's arguments in favor of long term QE come as the Federal Reserve holds its first policy meeting of the year.
Economists are generally confident that the central bank will keep the aggressive bond buying programs in place — for now. But, the question plaguing the minds of many is when will it end?
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Speculation that the Fed may wind down quantitative easing programs this year was driven by the release of minutes from the December Federal Open Market Committee meeting.
The minutes stated that “several [members] thought it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability and the size of the balance sheet.”
Krugman argues that the economy is still ailing and now is not the time for the Fed to give consideration to such ideas.
“Almost 4 million workers have been out of work for more than a year,” he tells Yahoo. “We haven't had anything like that since the 1930s,” he adds.
“If the Fed can convince people that it‘s going to keep the pedal to the metal … that still has some leverage on the economy,”
While many cite the possibility that the Fed's policy may spark inflation, Krugman notes that inflation of 3 or 4 percent could be helpful.
While he acknowledges that the economy is in the midst of a slow recovery, he says the United States continues to suffer from “depression conditions.”
He also dismisses the concerns over the federal deficit. Krugman argues that the Federal government, like the Fed, need not lend its ear to calls for tightening spending, but rather insists that the path to better economic conditions is paved by more spending.
“There is no good reason dealing with debt should be a priority today,” he says.
“A growing economy is the best solution to all our problems.”
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