One month after a second round of quantative easing (QE), Ben Bernanke, the chairman of the Federal Reserve, is warning Americans a third round may be necessary.

The $600 billion (£400 billion) that is currently being used to buy US government debt and drive down interest rates has already begun to cause speculation that the process will devalue the dollar overseas and cause inflation. The bank has already announced it will buy $75 billion of US government debt a month until June.

But Bernanke used his appearance on CBS’s 60 Minutes to deliver the message that, despite the unlikelihood of a douple dip recession, the American economy remains weak and that deflation was of greater concern than inflation.

The current rate of inflation, 0.8% annual pace in the third quarter, falls short of the central bank’s long-term target range of between 1.7% and 2%.

Despite the American economy having grown since the third quarter of 2009, there are major concerns about the rate of unemployment, which reached 9.8% in November.

Bernake says it may take up to five years to return to a normal level of unemployment of around 5-6%.

The prospect of a third round of QE immediately set the price of American treasuries rising and raised demand for American government debt.

Article from : http://www.fundstrategy.co.uk/markets/america/bernanke-hints-at-qe3/1023261.article