Heading toward QE2

The Fed is starting out QE2.

Federal Reserve Chairman Ben S. Bernanke said the central bank's first round of large-scale asset purchases improved the economy and that further buying is likely to help more.

"I do think that the additional purchases -- although we don't have precise numbers for how big the effects are -- I do think they have the ability to ease financial conditions," Bernanke said in response to questions in Providence, Rhode Island, at a forum with college students. He said the first wave that ended in March was an "effective program."

Bernanke and other Fed officials have signaled during the past two weeks that the central bank may announce the purchase of more Treasuries as soon as their next policy meeting Nov. 2-3 in an effort to boost economic growth and reduce an unemployment rate persisting at 9.5 percent or higher for the past year.

Separately, Brian Sack, the New York Fed official in charge of carrying out FOMC decisions, said a further expansion of the central bank's $2.3 trillion balance sheet would help stimulate a recovery that is forecast to be "relatively tepid." Smaller steps of purchases may be warranted in contrast to the last round, Sack said in Newport Beach, California.

Richard Berner, co-head of global economics at Morgan Stanley in New York, said a second round of large-scale asset purchases, also known as quantitative easing, is a certainty.

"We're skeptical that you get a lot of bang for the buck because there are a lot of blockages in the transmission channel for monetary policy," Berner said during a radio interview on "Bloomberg Surveillance" with Tom Keene. "Nonetheless, with gridlock persisting elsewhere in the policy environment, it just seems to us like QE2 is inevitable."

The labor markets condition is likely to advance more than a few months ago, and the stock markets are also, albeit very gradually, on the surge. Nevertheless, the Fed seems like thinking that the current recovery is not enough to remove the pain in labor markets. When Bernanke says he'll do it, I'm sure he'll do it.