The Federal Reserve's plans to roll out a third round of quantitative easing to spur the economy will produce muted effects, as the country needs to see more fiscal reforms from Congress before more robust growth rates and job demand return, said Lindsey Piegza, an economist at FTN Financial.
The Fed announced Thursday that it would buy $40 billion in mortgage-backed securities held by banks a month, a monetary policy tool known as quantitative easing. It is the third round of easing the U.S. central bank has rolled out since the 2008 financial crisis.
The Fed added it would continue to sell is short-term Treasury holdings in the market and stock up on longer-term instruments with the aim of pushing down interest rates across the economy.
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The combined efforts will inject a total of $85 billion a month into the economy, with the $40 billion from quantitative easing being freshly printed money. The moves aim to spur investing and hiring.
The Fed also stated that conditions meriting rock-bottom interest rates will likely stick around through mid-2015, longer than a previous guidance that predicted conditions calling for tightening to return at the end of 2014.
It won't make much of a difference, Piegza said, unless Congress addresses tax and spending issues.
"So, as we have see this third round come in, it's very unlikely that we'll see that great boost to the economy that we are expecting," Piegza told Newsmax.TV in an exclusive interview.
"Right now, what we need to see is the private sector take hold of some certainty coming out of Capitol Hill and to be able to create jobs and generate income."
At the end of the year, the Bush-era tax cuts and other tax breaks are scheduled to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the economy sliding into recession if left untreated by Congress.
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
Lawmakers have generally been unwilling to address such tax and spending issues in an election year, and confidence still remains battered by, among many other things, the brinkmanship legislators displayed during the 2011 debt-ceiling debacle, which nearly threw the country into default and cost the United States its coveted triple-A ratings.
Fed Chairman Ben Bernanke himself has said that monetary policy alone is not a panacea and has added that Congress must do its part to address debts and deficits to speed up recovery.
Since the downturn, unemployment rates have yet to fall below 8 percent, while in the second quarter of this year, the country's gross domestic product grew a tepid 1.7 percent.
"All along Ben Bernanke has been trying to hand over that proverbial baton to the federal government, saying 'look, we have done all that we can do, now it's up to you,'" Piegza said.
"But unfortunately, those in Capitol Hill continue to really banter between themselves as we face this upcoming presidential election, keeping the pressure on the Fed to really stay at the helm of propping up the economy."
Inactivity in Congress has forced the Fed to act once again.
"I think there was some additional pressure on the Fed to do whatever means necessary in order to continue to keep the economy at this 2 percent level."
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
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