Wed August 1, 2012
Fed Considering Steps To Boost Economy
Originally published on Thu August 2, 2012 7:31 am
STEVE INSKEEP, HOST:
It's MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.
RENEE MONTAGNE, HOST:
And I'm Renee Montagne.
Later today, the Federal Reserve could announce new steps to boost the U.S. economy.
INSKEEP: Let's remember, the Fed has two mandates here: one is to keep inflation in check, the other is to promote a healthy level of employment. Now, the unemployment rate has been stuck above eight percent.
MONTAGNE: And economic rate is slowing. So, as NPR's Chris Arnold reports, that's why the Fed is considering more stimulus.
CHRIS ARNOLD, BYLINE: Nobody is ever quite sure what the Fed is going to do next. But Fed officials have been signaling that they're still not happy with the painfully slow pace of the recovery. Fed Chairman Ben Bernanke recently asked whether the labor market might be quote, "stuck in the mud."
BEN BERNANKE: The reduction in the unemployment rate seems likely to be frustratingly slow.
ARNOLD: Just yesterday, the Commerce Department said that consumer spending was flat last month. It was flat the month before, too, and that's yet another sign of slow growth.
Do you think the Fed should do anything at this point?
NARIMAN BEHRAVESH: The Fed should do more, and we think it probably will do more.
ARNOLD: Nariman Behravesh is chief economist of the forecasting firm IHS. He says one thing the Fed can do is to keep putting downward pressure on home mortgage rates. He says that puts more money in Americans' pockets when they refinance, and it helps the housing market.
BEHRAVESH: The housing recovery is crucial to the overall recovery of the U.S. economy. We need a recovery in housing. So in that sense, what the Fed has done has had an impact on housing. And we are coming off bottom right now. What the Fed has done and what it's likely to do will be beneficial for the recovery.
ARNOLD: But many experts wonder just how much more the Fed can actually do. Rates on home mortgages and treasuries are already very low, so the Fed might not be able to get them much lower.
RANDALL KROSZNER: I think the economy does seem to be stuck in what I call a sideways slide.
ARNOLD: Randall Kroszner is an economist at the University of Chicago and a former governor of the Federal Reserve Board. He thinks that the Fed might soon announce another program to buy up hundreds of billions of dollars worth of home mortgages. That would make more money available for loans. But...
KROSZNER: The Fed has already done a lot. And so, something like this would be helpful.
ARNOLD: Still, Kroszner says, to use a baseball analogy, that might be a single. But the real big hitters at this point are the U.S. Congress and leaders in Europe. Congress hasn't done much of anything to resolve uncertainty over the so-called fiscal cliff. And what that means is that the private sector can always boost the economy by spending money. But right now, businesses don't know what tax policy is going to be next year, for example. There's all kinds of uncertainty, and many analysts think that that's probably stifling economic growth.
Also, things in Europe keep sporadically looking like they're about to fall apart.
KROSZNER: I'd love to see the Europeans hit a home run and move some people around the bases. I don't think we're quite there yet. One of these days, they'll connect and hopefully that'll make things a lot better.
ARNOLD: Some analysts think that the recent moves by the Fed are actually hurting portions of the U.S. economy. Jim Rickards is a partner at JAC Capital Advisors. That's a hedge fund in New York City.
JIM RICKARDS: I think the Fed has been on a mistaken path since late 2009. I think they've just made the same mistake that Alan Greenspan made, which is to keep rates too low too long.
ARNOLD: Rickards says that can foul up financial markets, create bubbles. And as far as average Americans, low interest rates can hurt savers and older people on fixed incomes.
RICKARDS: It is really, really hurting U.S. savers.
ARNOLD: For example, retirees often want safe but shorter term investments - such as a one-year CD. But many of those, right now, are only offering an annual return that's well under one percent. Still, many analysts see the Fed as the only option when it comes to stimulus, at least in the short term. They think it's unlikely that Congress will do much before the election.
Speaking at a recent hearing, New York Senator Charles Schumer was very direct about this, with Fed Chairman Ben Bernanke.
SENATOR CHARLES SCHUMER: Given the political realities. Mr. Chairman, particularly in this election year, I'm afraid the Fed is the only game in town. And I would urge you to take whatever actions you think would be most helpful in supporting a stronger economic recovery.
ARNOLD: The Fed could announce such action later today. It's also possible, and probably more likely, that even if the Fed is leaning towards more stimulus, that it may wait another month until its September meeting so that it can gather more data on the economy.
Chris Arnold, NPR News. Transcript provided by NPR, Copyright National Public Radio.