Rep. Kevin Brady (R-TX) today voiced concern at a report in today's Wall Street Journal that the Federal Reserve is considering a "sterilized" quantitative easing of teh money supply as a means of shoring up faltering sectors of the economy.
A "sterilized" quantitative easing is what occurs when the Federal Reserve simultaneously creates money by purchasing long term Treasuries or residential mortgage backed securities (RMBS) issued by Fannie Mae or Freddie MAc and removes this additiona money through short term deposits from banks or reversing repos with banks and other financial institutions.
"Whenever you pour gasoline onto a fire, however well controlled the fuel feeding mechanism may be, it's dangerous." Brady said. " The Fed's consideration of "sterilization" is a tacit admission of the inflationary risk from additional purchases of long term Treasuries or RMBS."
"Sterilization is difficult to achieve," Brady siad. "If the Fed successfully sterilizes its purchases, QE-3 would make little difference. If the Fed cannot, which is farm more likely, QE-3 may push inflation higher in the months ahead"
"This monetary experimentation must end. The Fed should stop trying to fine tune the recovery. Instead the Fed should focus on maintatin long term price stability." This week, Brady will formally introduce the "Sound Dollar Act,"that would give the Fed a single mandate for price stability.
"In these difficult times, inflation may prove the greatest threat of all to the soundess of our economy," Brady continued. "It imposes the harshest of penalties to people on fixed incomes, retirees, and senior citizens."