The Federal Reserve’s grand experiment is a flop. Not only has the second round of quantitative easing roiled markets, but it has become a lightning rod for debate in Washington, academia, and in policy and political circles around the world. The US central bank’s uncharacteristic defensiveness has only deepened the suspicion – putting over 30 years of hard-won credibility and independence at risk. Sadly, this backlash is well founded. The Fed is running a real risk of destabilising a still precarious post-crisis world.

Unable to cut the price of overnight money any further, America’s monetary authority has turned, instead, to the quantity dimension of its arsenal. While the efficacy of this approach is debatable for a US economy in the throes of a protracted deleveraging, a deeper question arises when probing the Fed’s motivation. Justification is offered in the form of a new buzz-phrase – “mandate-deficient” growth.

In layman’s terms, this means that a post-crisis US economy is falling short of the Fed’s legally stipulated policy goals – full employment and price stability. That is especially true of a 9.6 per cent unemployment rate – to say nothing of the 17 per cent of America’s workforce that is either jobless or under-employed. But it is now also the case with a “market-based” core consumption inflation rate of 0.9 per cent that has edged below the threshold the Fed believes is consistent with price stability.