Mr Volcker, addressing a conference at Gleneagles in Scotland, said the decision by the Fed to begin a third round of asset buying — nicknamed QE3 — amounted to the “most extreme easing of monetary policy” he could recall. Mr Volcker’s comments came as the World Trade Organisation intensified the economic gloom by slashing its global growth forecasts.
The organisation said it expected the world economy to grow 2.5pc this year, from a previous 3.7pc forecast, while growth in 2013 would slow from a previous estimate of 5.6pc to 4.5pc.
Although not explicitly directed at Fed chairman Ben Bernanke, Mr Volcker’s words will be seen as a veiled criticism of the limitations of the current strategy being employed by the Federal Reserve.
Mr Volcker, who has been a pivotal force in post-crisis regulation – as well as the architect behind the “Volcker Rule” that bares his name – addressed the Institute of Chartered Accountants in Scotland conference about how to revive the economic fortunes of the western world. “Monetary policy is about as easy as it can get,” said Mr Volcker, who built a reputation for quelling inflation through the unpopular decision of raising interest rates during his tenure at the US central bank. “Another round of QE is understandable – but it will fail to fix the problem. There is so much liquidity in the market that adding more is not going to change the economy.”
Last week, the Fed announced a programme of unlimited purchases of mortgage-backed securities in an effort to boost the economy and drive down unemployment. It also said it would hold rates near zero until mid-2015 .
The strategy has elicited rebuke from some critics, including the finance minister of Brazil, who accused the US of potentially reigniting currency wars.
The Fed is already committed to buying long-dated Treasuries, which together with the new round of QE will see a total of $85bn (£52bn) spent each month buying assets for the rest of 2012.
Mr Volcker stressed that although the risk of inflation was not imminent, central bankers had to be careful. “The risk is that central bankers are not able to tighten policy in time. Will they be able to pull back fast enough from loose monetary policy?” he said.
In the UK, the Bank of England is also expected to pump more money into the system. The recent minutes of the monetary policy committee revealed several policymakers believe more stimulus will soon be needed and analysts are predicting a further £50bn of QE could be launched at the November meeting.
In his address, Mr Volcker concluded that the US was still the country that should lead the world recovery.
“We can no longer look to China to rescue the world. The Chinese economy has slowed 50pc since its peak and is no longer able to support international growth.
“Europe is in or near recession, including the UK. So don’t look to the UK, to China, Brazil or India — the US is the only country that can create the type of economic hope and market leadership the world needs. We have a weaker platform than we used to but it is still the most important platform in the world.”