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Moody’s Chief Economist John Lonski on the Federal Reserve’s concerns about the economy’s weak recovery.
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John -- chief economist at Moody's.
To give us a sense of what's happening in this market.
Well I think the Fed made it clear that it will do what ever needs to be done.
And order that neither the economy with a financial markets fall.
The Fed senses that the fundamental still are not strong enough to allow the economy we roll forward on its own.
So which going to leave these.
Training wheels of extraordinary monetary stimulus in effect indefinitely.
-- Bernanke.
Today and offering a positive outlook.
-- some would even suggest that you might be endorsing one candidate or the a the other he was so positive your reaction.
Well you know if he's so positive then why do we have -- -- federal funds rated 0%.
So he's saying one thing with the result what things will eventually get better but for the time being -- You know the US economy -- -- -- to have this monetary prop taken away.
And let's not forget that the Federal Reserve now functions not only to central bank of the United States.
The Central Bank to the world are as you know Jerry Rawls you have the ECB can only do so much so -- we're talking on an economy.
Larger than America's the ECB has a bigger role.
-- we're supposed to bring them along as well.
Well I that's the case for the time being because this -- in the Euro currency the European -- European Central Bank was it exactly well thought out.
And the Euro itself it looks like it's under assault.
Then it is but I -- the Euro the exchange rate is still at at -- higher than a buck thirty which I find to be surprising.
Given the fact Euro -- is -- recession and according to the a flash PMI for.
The Euro -- as of April that recession is getting worse it's hard to believe the currency has -- in it.
As well as it has don't like what for the British pound the pound sterling always compounds made.
Why the British get away with that exchange rate is beyond me.
What you know some Saturday that there are these very forward looking people in the -- exchange market that believe all this monetary stimulus.
From the Fed will eventually lead to very rapid inflation in the United States in a sharp downturn in the purchasing power.
Of the US dollar right -- and keep on waiting as long as the average wage grows by no more than 2% annually there's no way in the world that the year US consumer can afford to nurture.
Much rapid much faster inflation and their.
Outlook on grow we were talking about almost 3% growth that the upside as -- -- Bob who porch of the ban from the bad.
I mean that's pretty good stuff.
-- but I still think that you know year over year growth rate but by the end of the year comes in no higher than 2.5 percent that's according to the blue chip on his senses and good burning you're gonna have to quibble over -- we'll have to go to quibble over that but let's not you know forget that.
In the past when we came lot of severe recessions say in 1984.
Real GDP grew by 7% annually for a what we're not even close to that you know we get excited.
If real GDP growth reaches 2.5.
Percent which is what people are looking for with a first quarter real GDP report.
Our first quarter real GDP housing if anything positive in prospect.
Well the only thing you could save -- how he's getting some support.
From a relatively mild winter.
But -- goodness you know my -- -- when I talk to Google from around the country the anecdotal evidence is.
Very weak most claim that home prices are still falling.
And when you've got the declining home prices.
You can ill afford to have declining equity prices if you combine the two you could have a pullback -- consumer spending.
There could be severe enough to stall the economy so I think it's it's it's premature.
To take -- opt optimistic view of policy at best we can only hope that housing doesn't get any worse.
It's clear right now the US economy is the world leader.
Markets here are the world leader.
It at what point do you see some sign.
Expect to see some sign of weakening -- weakening or diminishment.
You know I think that we're going to continue to model -- long.
I don't think that we have the type of access is in the US economy today that might push -- -- a a recession usually no bubbles in the real economy ready to burst and topple the US economy.
Should we not seen yet except student loan because -- -- apocalypse OK and that's gonna catch up with the education industry.
I -- I -- those in that particular industry not gonna be seen to pay raises that they have become accustomed to going forward.
Are represented me and go away as far as the stock market I still see some upside potential about 5%.
And debt later you know this year we're gonna have to be convinced that profits will continue to grow but at this point in time.
With very low bond yields.
Add the continuation of profits growth.
The equity market still remains undervalued somewhat not as much as it was earlier this year but perhaps undervalued by at least five.
To 7%.
John wants to the decision saying there and I apologize from --
