Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy."
CNBC: Fed's Big Gamble--What Could Go Wrong?
CNBC—Nov. 3, 2020— http://www.msnbc.msn.com/id/39985108/...
Former Fed Governor Larry Meyer discusses what could go wrong in the Fed's controversial plan to purchase more bonds.
Copyright CNBC 2010
What could possibly go wrong?
It could make the weak dollar even weaker and lead to trade disputes with other countries. It could lead bond traders to believe that higher inflation is on the way, and they could derail the Fed's efforts by pushing rates higher.
Many investors argue that it may create bubbles as hedge funds and other speculators borrow cheaply and make even bigger bets on stocks, commodities and markets in developing countries like Brazil.
"It's a desperate act," says Jeremy Grantham, co-founder of the investment firm GMO. Grantham says it's a clear message from the Fed to the rest of the world: "The U.S. doesn't care if the dollar weakens."
Speaking of the 90's, David Ader, head of government bond strategy at CRT Capital, stated: "If the Fed's efforts fail we suddenly look like Japan," Ader says. "Japan started off wimpishly, then did it again, and again and then they wound up losing a decade."
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