THE Fed's QE2 programme of expansionary asset purchases is nearing its end, and later today all eyes will be trained on Ben Bernanke for hints about whether a a new round of purchases might be forthcoming. This confluence of events provides an opportunity for Buttonwood and me to renew our debate over the value of monetary easing. Yesterday, I wrote:

The Fed's second big round of asset purchases generated a firestorm of criticism, most of which turned out to be dead wrong. Additional easing was associated with a period of growth and a substantial improvement in America's labour market. It was not associated with a dollar collapse or excessive inflation.

Buttonwood says he's not so sure. But he should be! He comments:

[W]hen Ben Bernanke unveiled his plans for QE2 in August last year, the unemployment rate was 9.5%, now it's 9.1%. Is this an improvement on what might have happened anyway? The counterfactual is hard to prove.

The counterfactual is difficult to prove, but the numbers are more suggestive than he lets on. The unemployment rate had resumed rising in August, when the Fed signaled its intention to act. By November, when new asset purchases actually began, the rate had gone up from 9.5% to 9.8%. Thereafter, it tumbled by a percentage point; the drop in the unemployment rate in the three months after November was among the largest of the postwar period. Employment statistics, also computed by the Bureau of Labour Statistics but taken from a different survey, tell a similar tale. In the three months to August of last year, the economy shed 300,000 jobs. In the three months to November, it added 235,000. In the three months to February of this year, employment grew by 455,000 jobs. The labour market pivoted late last autumn, from deterioration to improvement. Perhaps QE2 isn't solely responsible for the dramatic turnaround. But the trend break associated with new easing gives me confidence that the counterfactual world would not have been better, and would likely have been far worse.

He continues:

The dollar hasn't collapsed but is 6.8% lower on a trade-weighted basis since the start of last August; the equivalent of a modest devaluation under Bretton Woods.

A modest devaluation was salutary and entirely justified—overdue, given America's persistent trade deficit. What's more, about half of this devaluation was simply an unwinding of the dollar appreciation that took place early in the year as markets began fretting about trouble in Europe. Buttonwood is essentially acknowledging that QE2 was on this count associated with a good thing. What QE2 was not associated with was the potential disaster warned about by QE2 critics—abandonment of the dollar.

As to the inflation point, some would say that emerging market inflation owed something to Fed policy.

Some would say that. I'm not sure the claim stands up to scrutiny, however. The Economist has joined others in arguing that credit conditions in China, for instance, have long been too loose. And as China has tightened credit, commodity prices have plateaued. I don't know that we need to look beyond inappropriately loose policy in emerging markets to explain emerging market inflation. What is quite clear is that core consumer prices in America never rose beyond the Fed's comfort zone, and long-term inflation expectations remained well in hand.

So again, I'll say that if one looks at the numbers the balance of costs and benefits seem to fall squarely in favour of additional Fed easing.