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Interview: QE3 "close call": former Fed governor

English.news.cn   2012-09-13 13:19:10            

by Katherine Harbin

CHICAGO, Sept. 12 (Xinhua) -- The decision by the U.S. Federal Reserve Bank as to whether or not to implement another round of quantitative easing monetary policy will likely be a "close call," a former member of the Fed's Board of Governors told Xinhua in an interview Wednesday.

Randall Kroszner, who served as a Fed Governor from March 2006 to January 2009, said that while recent releases from the Fed indicated that the central bank was poised to move soon, it remained uncertain whether new economic stimulus measures would be announced at the conclusion a two-day policy meeting Thursday.

"I think they are very close to doing some more quantitative easing, but I think that's a very close call as to do that now or whether they' re going to wait for a little more information to see how the labor market is evolving," commented Kroszner, now an economics professor at the University of Chicago Booth School of Business.

Kroszner based his prediction mainly upon recently released minutes from the Fed's August meeting, as well as a speech from Fed Chairman Ben Bernanke in Jackson Hole, Wyoming.

In his Aug. 31 Jackson Hole remarks, Bernanke had expressed his concern regarding high U.S. unemployment and other economic difficulties, and told those assembled that "the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Kroszner believed both Bernanke's comments and the August meeting minutes made it clear the Fed would act "fairly soon," at either this meeting or the next one in October. However, last Friday's below expectations jobs report from the U.S. Department of Labor suggested a lack of progress in the employment situation, and could prove a motivating factor for the Fed to decline waiting further.

But while the U.S. stock market and commodities like gold have rallied the past two weeks on hopes for Fed action, the ultimate economic effectiveness of quantitative easing policies remains to be debated. Almost four years since the first round of quantitative easing and two years after the second, U.S. economic growth remains sluggish, with the unemployment rate hovering around 8.1 percent.

While Kroszner told Xinhua he believed quantitative easing policies had helped to reduce interest rates and made it easier for people to borrow, he said that their effectiveness upon the labor market was much less clear.

Though the Fed's monetary policy could greatly impact inflation, deflation and interest rates, Kroszner opined that the link between quantitative easing and jobs or GDP growth was not quite as tight, but believed it had some positive yet unquantifiable impact.

Due to the somewhat ambiguous arguments regarding the usefulness quantitative easing policies could have on the current U.S. economy, Kroszner supported that they should be discussed and considered carefully.

"I think it' s a very reasonable debate to be having right now whether the Fed should be doing more or not and what the effectiveness of this would be," he commented.

"I think one of the concerns is that the marginal impact --if you do more and more of this then the impact may not be as strong as in some of the previous rounds," Kroszner continued, adding that Bernanke had advised there could be some costs to more quantitative easing in terms of increasing inflation expectations.

However, Kroszner did have high praise for the first round of quantitative easing and other policies taken by the Fed in the wake of the 2008 financial crisis.

The economics professor credited the central bank with preventing deflation and helping to avoid a repeat of the Great Depression, but argued that it took more than just the Fed to turn around the U.S. economy.

"There are a lot of other headwinds that the economy is facing -- uncertainty from Europe... fiscal policy in the U.S... so there are a lot of things outside the Fed's control that are maybe the primary things now that are holding back the economy from taking the next step," Kroszner concluded.

The September Fed meeting ends Thursday, with a policy decision scheduled to be announced at 12:30 p.m. and a following press conference by Bernanke.

Editor: An
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