Mixed signals from Fed's QE2 programme

On Wednesday, the US Federal Reserve (the Fed) launched a second round of quantitative easing (QE2) in a further attempt to stimulate the US economy. It is a drastic use of monetary policy that, by priming the banking and money market systems with liquidity, is intended to reduce interest rates, raise inflation expectations, and encourage credit creation. The aim is that this should lead to greater investment and spending.