Options narrow for Federal Reserve action
Jeremy Hobson: Well staying with the Central Bank theme, Fed Chairman Ben Bernanke is on Capitol Hill today. And he’s under pressure to do more stimulating of the economy right here in the United States.
Adolfo Laurenti is deputy chief economist with Mesirow Financial. He’s with us live from Chicago. Good morning.
Adolfo Laurenti: Good morning.
Hobson: Is Ben Bernanke going to follow the lead of the Chinese Central Bank and do something here as well?
Laurenti: You know it appears increasingly likely that some type of action will be taken by the Federal Reserve as well. Economic data has been soft to disappointing, most notably the labor market is still struggling. This is the major concern for Bernanke and many of the Fed open market committee members. So yes, it seems likely that some type of action will be taken.
Hobson: Well it’s interesting because I wonder whether we should be concerned that we keep having to go to the Fed for help, that the economy can’t really stand up on its own two feet right now.
Laurenti: Well it is maybe of concern in two respects. First of all, this economy seems to fail to generate self sustaining growth, and that is a major implication not just for the job market, but think about our deficit, the investment in new technology, how much we can spend in education, healthcare and so on.
So that’s a major concern, but it’s also a concern of what the Fed can do because on the monetary policy front, most of the low hanging fruits have already been taken. It’s easy to cut rates, but the Fed Fund’s rates that are already at zero. It’s easy to do some quantitative easing at first, but with the long term rates already low, it’s very difficult to get the bang for the buck. So there’s still some options, the Fed can always go big, but the margins of options are getting narrower and narrower.
Hobson: Adolfo Laurent, deputy chief economist at Mesirow Financial, thanks very much.
Laurenti: Thank you.
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