QE2 could hit US$1.5t

SINGAPORE - Analysts expect the United States Federal Reserve to pump more cash into the economy if its US$600 billion ($773 billion) bond-buying plan fails to prevent deflation. 

Some market watchers say the Fed's so-called quantitative easing (QE2) programme could eventually grow to as much as US$1.5 trillion, despite criticism from other countries, including China. 

"It's almost as if the Federal Reserve is trying to put out a fire with a leaky bucket, but it's the only bucket it has," said Mr Kevin Logan, chief US economist at HSBC. "Is the Fed being reckless? I don't think so."

But critics of QE2 say it may not do much to spur growth, prevent deflation or bring down unemployment in the US. Liquidity may leak out of the US and cause asset bubbles in emerging markets, where prospects for economic growth are stronger. 

Mr Logan, though, is more optimistic. He expects economic growth in the US to quicken to between 3 and 3.5 per cent by the end of next year, and the jobless rate to ease to 9 per cent in a year, from 9.6 per cent now. Jonathan Peeris