Ben Bernanke yesterday gave his clearest signal yet that the US is set to restart its quantitative easing programme as the world's biggest economy struggles to emerge from the recession.
With low inflation – core inflation is at a 50-year low – and persistently high unemployment, America is struggling to shake off the effects of the downturn, with the Federal Reserve chairman hoping that a fresh injection of capital will help to stimulate growth. Speaking at a meeting of the Boston Federal Reserve, Mr Bernanke said: "There would appear, all else being equal, to be a case for further action.
"Although output growth should be somewhat stronger in 2011 than it has been recently, growth next year seems unlikely to be much above its longer-term trend. If so, then net job creation may not exceed by much the increase in the size of the labour force, implying that the unemployment rate will decline only slowly."
The next meeting of the Federal Open Market Committee, which sets interest rates and the level of quantitative easing, is scheduled for the first week of November.
"All things being equal I expect we will see the Fed add a minimum of $500bn into the US money supply in an effort to secure the US recovery and make sure the recession is not a double-dip and more of single-scoop," said Jeremy Cook of currency brokerage World First.
Any resumption of buying up US government bonds and commercial paper is likely to weaken the dollar, fuelling fears of greater tension with China over currency values. More QE would make US exports more competitive against Chinese goods, which would be welcomed by US exporters.