The Federal Reserve's decision to extend its very accommodative monetary policies for another year reflects a view that inflation is much less of a threat than a return to a more crippling recession, says investor and author A. Gary Shilling.
The Fed recently said interest rates will stay very low through the end of 2014, longer than originally thought, while further stimulus measures such as quantitative easing cannot be ruled out.
That, Shilling says, means the economy is weak despite recent positive economic indicators such as jumps in consumer spending.
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"The Fed is being cautious and so are we. We had that blip in consumer spending late last year, but it wasn't substantiated by income growth, and consumer spending is easing off as of December, and I think that's going to go negative," Shiller tells CNBC.
"I'm looking for a moderate recession in this country."
The United States has spent the past few years paying down debts, especially at the household level, which has dampened growth. That trend probably has another five to seven years to go, consider the amount of debts the country has run up over the past few decades.
"The Fed extending here is no great surprise because I think they're seeing the same thing, that this deleveraging among U.S. consumers and the financial sector on a global basis and then the European problems and the hard landing in China — you put this together and it's going to be a long, long slog," he said.
Other market heavyweights echoed that sentiment.
"This is basically an easing of policy all the way through 2014. It suggests to the marketplace that not only will the Fed eventually buy additional securities, but it will keep this policy rate constant at 25 basis points for two, three, four, perhaps even five years," Bill Gross, founder of Pimco, owner of the world's largest bond fund, told CNBC.
Under quantitative easing, the Federal Reserve buys assets from banks like Treasury holdings or mortgage-backed securities with the aim of stimulating the economy and preventing prices from falling into a deflationary pattern.
The Fed has rolled out two such programs so far, buying $2.3 trillion in assets from banks in the process, thus pumping the financial system full of liquidity.
Fed Chairman Ben Bernanke told reporters in a televised press conference that he can't rule out a third round of easing although the U.S. central bank doesn't have specific plans for such as of now.
"We are prepared to take further steps in that direction if we see that the recovery is faltering or if inflation is not moving towards target. It's an option that's certainly on the table," Bernanke told reporters at a press conference following the Fed's latest monetary policy meeting.
"I think it would be premature to say definitively one way or the other, but we continue to look at that option and if conditions warrant we will certainly consider using it."
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