Tags: Fed | FOMC | policy | rates

The Economist: Fed’s Unconventional Tools to Blame for ‘Weak Recovery’ in US

Friday, 22 Mar 2013 08:37 AM

By John Morgan

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A bristling commentary from The Economist stated that the Federal Reserve ended its two-day meeting this week with a "nothing burger of a statement," and that Fed decision makers are guilty of conducting a "pretty lousy monetary policy" for years on end.

The publication noted little changed in the Federal Open Market Committee (FOMC)’s statement on the economy. Both asset purchases and rate guidance are continuing just as before.

While the United States may appear in better shape than some other parts of the developed world are, the jobless rate remains well above pre-recession levels and the Fed does not expect it to fully recover until 2015 at the earliest.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

“It should go without saying that seven full years with unemployment above normal is a sign of pretty lousy monetary-policy performance,” The Economist said.

In addition, the weak U.S. recovery is the result of the fact that the Fed is less convinced of the benefits of “unconventional tools” it has been using — i.e. quantitative easing — than it is concerned about the inflationary risks those tools could unleash.

Moreover, The Economist predicted the FOMC’s best guess of 4 percent for the long-range value of the fed funds rate could doom the nation to another weak recovery and high unemployment in the next downturn.

A fed funds rate target of 4 percent is “strikingly low,” and the Fed had to cut that rate by more than 4 percent during the past three recessions to spark a recovery, the publication noted.

The Economist pondered whether the Fed should raise its 2 percent inflation target or otherwise change interest rate policy to escape the current course.

“But right now, the Fed’s answer seems to be: get used to nasty recessions and insufficient monetary response, suckers. At least until academics tell us it’s safe to try something new.”

Unnamed economic and political advisers of President Barack Obama are suggesting Fed Chairman Ben Bernanke may step down in January 2014 when his current term ends, according to Bloomberg. Bernanke is “exhausted and wants to return to private life.”

Bernanke dodged the question of retirement from the post at a Fed news conference in Washington, D.C., this week, but acknowledged he had been speaking of the matter with the president.

“I don’t think that I’m the only person in the world who can manage the exit,” Bernanke said of the unprecedented bond-buying strategy aimed at keeping the economy afloat and back to recovery mode during his Fed tenure.

However, The Christian Science Monitor speculated that Bernanke’s departure is not definitive.

The Monitor reported Bernanke apparently does not support the idea that the Fed chairmanship should come with an eight-year term limit. Bernanke has served almost eight years, but his predecessor Alan Greenspan served nearly two decades.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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