Chinese economist expects loose Fed policy

Aug. 13, 2011 at 12:06 PM

BEIJING, Aug. 13 (UPI) -- Chinese policymakers should be on guard against a possible third round of quantitative easing in the United States, a prominent Chinese economist said.

"The United States is very likely to launch another round of quantitative easing to boost its sluggish economy," Lu Zhengwei, chief economist of financial markets at the China Industrial Bank, said in an article published in the China Securities Journal. "The U.S. Federal Reserve may simply be waiting for the proper time to announce it."

The second round of quantitative easing, which ended in June, was a six-month, $600 billion program that was unpopular overseas, as the strategy, also known as printing money, dilutes the value of the dollar which makes U.S. goods more affordable abroad and foreign goods more expensive in the United States.

Lu said in response, China should continue to tighten monetary policy, a step also prompted by July's inflation rate for China, which reached a 37-month high at 6.5 percent, the official Chinese news agency Xinhua reported Saturday..

"Figuring out how to rein in excessive speculation without hurting the real economy is the biggest challenge for China," Lu said.

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