Open Letters

On Nov. 15, 2010, after then-Fed Chairman Ben S. Bernanke announced a second round of bond buying in that became known as QE2, a group of economists, investors and political strategists published a letter to him saying it would “risk currency debasement and inflation” and do little to promote jobs growth.

Stanford’s Taylor, a former Treasury Department official best known of his interest-rate formula known as the Taylor Rule, and Singer, who runs the New York-based hedge fund Elliott Management Corp., were among the 23 signees.

Also signing were Niall Ferguson, the Harvard University historian and author of The Ascent of Money: A Financial History of the World; Seth Klarman, who runs the Boston-based hedge fund Baupost Group LLC and wrote the preface to the sixth edition of Security Analysis, the landmark 1934 book by Benjamin Graham on value investing; economist Doug Holtz-Eakin, a former head of the Congressional Budget Office; and Jim Chanos, the founder of the short-selling firm Kynikos Associates LP, who rose to fame betting against Enron Corp.

Not Recognized

Taylor wrote in an e-mail that he wasn’t available for comment while traveling in Hong Kong.

Singer, who declined to comment on the Fed’s policies through spokesman Michael O’Looney, said in his firm’s July investor letter that “substantial inflation” is occurring in areas the Fed hasn’t “recognized or captured” in its analysis.

Ferguson, who referred to his blog post in December titled “Quantitative Teasing,” and Holtz-Eakin both said today the risks of inflation wrought by the Fed’s stimulus remain.

Holtz-Eakin also said QE has failed to produce enough growth to justify the potential costs to the economy. Since the recession ended in 2009, the U.S. has grown less annually than the post-World War II average of about 3 percent.

“Beginning with QE2, I have always felt that the additional easing flunked the benefit-cost test,” said Holtz- Eakin, who now leads the American Action Forum, a Washington-based advocacy group. “The growth merit was little and there were substantial potential costs. Time will tell.”

Diana DeSocio, a spokeswoman at Baupost, said Klarman still agreed with the letter’s content. He declined to comment further. Chanos didn’t respond to requests for comment.

‘Clueless’ Criticism

Top Republicans in Congress including Boehner weighed in on Nov. 17, 2010, with their own letter to Bernanke, which questioned the need for more stimulus after the Fed’s first round of bond buying pumped $1.7 trillion into the economy and expressed concern any additional purchases could result in “hard-to-control, long-term inflation.”

The Fed was also criticized abroad, with German Finance Minister Wolfgang Schaeuble calling the stimulus “clueless” that same month. Boehner and Schaeuble didn’t respond to telephone or e-mail requests for comment.

Although inflation based on the Fed’s preferred measure more than doubled to 2.9 percent within the year after QE2 was announced, consumer-price gains have since eased and risen less than the central bank’s 2 percent target for 27 straight months.