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Good stuff all the Fed's Beige Book today reporting the -- spending and all of its twelve regional districts.
So does this mean the chances of any further money operating by the Fed off the table -- now.
In a Fox Business exclusive his former fed governor Frederick -- and good to see you again thanks for coming in.
I don't -- you just heard mark Farber now I know he's generally bearish about things but he suggested that we're gonna go into a real rough.
Territory for a while despite today's up market.
And in fact there may be pressure on the Fed to do something perhaps even before the election what do you think.
Well I think it's really gonna be depend on what happens the economy.
We have moderate recovery.
Are under those conditions -- actually do not see the Fed doing more than it's doing right now.
That there regularly has specified to forgive me Fred but what when you say moderate recovery.
Would you include last month's sort of dismal jobs report as a moderate recovery or not.
No I actually think the last month was weaker than that but we've seen exactly this pattern of some good news and some bad news but basically we keep -- limping along.
With the growth rate of the economy such that we have very very slow reduction in unemployment that.
-- -- been a little bit surprising is that unemployment has been falling but that's not because of a good good economy it's because of discouraged workers people dropping out of the labor force.
You know this is this kind of scenario that -- actually I think is not gonna do to change what it's doing.
But -- the other hand there are wild cards and clearly what's going on in Europe is one of the big wild cards it.
Things really do blow up there that will have a very negative that it negative impact on on the US and in that case the Fed could actually change its its modus operandi.
And that's -- presume additional expansionary policies.
-- the well I put it right now is they've they've done a lot in terms of actually making a commitment to keep interest rates zero.
Through the end of 2014.
That's actually a very big deal been quite successful -- and -- if you.
Lowering long term bond rates and also helping prop up the stock market which is actually expansionary.
The next thing they would have to do would you go further -- that is QE3.
And quantitative easing is a very tricky operation or does that future you have got pushed.
One lever and another lever opens up I mean there -- -- the implications of this the unintended consequences.
Can sometimes be worse than what you're trying to fix will collect and in my case -- she thought that they're they're moving to this policy committee to keeping interest rates low for a for a very long time was actually -- exactly right thing to do.
Hi Doug QE2 had -- had much more problems with the quantitative easing is -- much trickier animal.
I -- not because -- -- to affect the economy but because it leaves the Fed balance sheet getting ever expanded.
And that creates letting his little remind viewers by the way the Fed balance sheet is now two point or it will be two point nine.
Trillion dollars by the end of June when this twist program -- that is that there's a lot of property be keeping your portfolio.
Well actually -- -- twist program actually is one it's not expand their balance sheet not at all between the the key thing that expect that the -- she was -- with QE2 would actually purchase of assets but two point nine billion mean how much more if the Fed decides it has to do something say we have.
The April unemployment figures as bad as -- was.
How much working that -- the balance sheet beyond two point nine -- -- -- the issue -- the expansion the balance sheet from a technical viewpoint is not a big issue.
-- that they can keep doing that.
It actually that that it had results -- a lot of reserves being kept in in the it had deposits at the Federal Reserve System.
It's not the issue the real issue to me is the political economy issue that.
With a very huge fed balance sheet it leaves -- the Federal Reserve to potential losses on terms of those assets.
And that could mean the politicians who -- -- -- been pretty damn -- to the Fed can get a hell of a lot worse well they and -- -- -- -- -- -- -- they see that there are consequences beyond adjusted change in its balance sheet word fact we do see an uptick we've certainly seen an uptick in commodity prices some of which I think everybody would agree is due to the easy money no.
Now I think you know why should -- not as it is due to these are putting out of that yet to go commodity prices sets up a Sullivan for the same way that -- that the -- expansionary monetary policy has been there for purpose.
To boost the economy in that sense it's actually -- the commodity price increase.
But you know some of this issue commodity prices for example oil prices.
Are very determined by real factors that fit that our countries like India and China growth -- They need a lot of oil and furthermore the big problem also is we have the the the problem of about potential.
Crazy things could happen in the Middle East.
And cause huge problems and all market lot of sort of I want to tell about crazy things happening right here in the -- -- -- in your colleagues crazy guys have been all over Fred I've got a clear that -- like interest thing -- it does make life interesting that's why we keep having you back Fred Michigan great to see -- thank you for covenant.
You're very well.