Weighing the costs of fiscal stimulus

April 27, 2013 

There is little that is riveting about a cost-benefit analysis. Still, we perform them all the time without applying such a formal, academic-sounding name to it. If I have a cup of coffee after 4 p.m., will I be able to go to sleep at a reasonable time? Should I take the highway or stick to the local roads? Do I cut cable TV and rely solely on what's available through Netflix and Hulu?

For two days in the week ahead, the Federal Reserve will go through its cost-benefit analysis for buying $85 billion worth of bonds each month. The purchases make up the central bank's latest effort to keep interest rates abnormally low in hopes of inspiring consumer and corporate confidence to borrow and spend.

The cost-benefit debate inside the Federal Reserve is closely watched for any nuance to changes in the agency's willingness to keep its foot firmly on the economy's gas pedal. If there are any hints, they will be included in the agency's policy statement Wednesday afternoon. Any nuance will be reflected immediately in the stock market.

In March, a few Federal Reserve members suggested the costs of continuing with its strategy would outweigh the benefits to the economy by the middle of this year. Costs include encouraging excessive risk-taking by investors hunting for profits. Since then, the risks have risen, but the benefit is much more ambiguous.

Tom Hudson, a financial journalist based in Miami, is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter@HudsonsView.

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