Fox Business
Expand
Browse All Video
Watch Live

You're watching...

Economist Expects More Stimulus

Details

  • Description

    Jefferies chief financial economist Ward McCarthy gives his outlook for the Fed and economy.

  • Duration 4:16
  • Date

Clips

Also in this playlist...

Economy

Auto-advance: ON

Auto-advance
View All

Transcript

This transcript is automatically generated

So much have also.

Bernanke remaining tight -- about further easing as he testified before congress earlier today but our next guest says Bernanke's comments today.

Do not diminish the likelihood of stimulus ahead he thinks.

It's coming at the next FOMC meeting joining us now -- ward McCarthy chief financial economist at Jefferies why do you think that.

Well I think -- for a number of reasons -- let's start with his testimony today.

He has all year long taken the approach that he would neither pre commit.

-- preclude any policy possibilities and he did that again today.

But when he was asked about what the Fed would do.

He specifically said the decision for us right now is to decide whether or not the economy is growing fast enough.

To create enough jobs to get the unemployment rate down.

And then he also kinda cast some doubt on the strong payroll numbers that we got in late 20112012.

So I think that's the way that the Fed Chairman Bernanke cleaning and I think he has a majority that will go along with a.

You -- that's really interesting interpretation because that was one of the things that was very notable about his testimony -- that he sat near the end of buoyant picture got better at first.

Because it will catch up employment it was people who had tried as hard as it probably could not to hire more people but now it's gonna take real economic growth in order to get more people hired.

So that ended up -- up was pretty pessimistic right Warren.

Well it's pessimistic on the economy but optimistic about providing more stimulus and I want -- -- -- like ASEAN.

And the thing is that you know the Fed has a dual mandate.

And they have a specific inflation target and they don't have that a specific.

Target on the unemployment rate because it's really not clear.

What unemployment rate is consistent with full employment.

But -- already below there inflation target -- going to move further below the inflation target.

Over the next couple of months so frankly that gives them free -- TVs and frankly from a policy standpoint they should -- they're missing on both targets.

That means that they should provide more stimulus.

I'm -- -- name the employment targets really hard because it's hard to tell you know what direct impact the bank can have an employment anyway but that's kind of a different discussion.

Let me ask you think you expect a modified.

Extension of Operation Twist what does that mean.

Well it just means that.

-- that instead of just buying treasuries I think what they'll do -- by a combination of mortgage backed securities and thirty year bonds.

I think this for a couple of reasons first of all.

To the extent that they are trying to have an impact on the economy.

Buying mortgages at this point with rates already so low.

I think would be more helpful because we'll get mortgage rates to decline more.

And that will help the consumer.

But the other thing is from a logistical standpoint the Fed is limited to buying 70% of outstanding issues.

And in the ten year sector of the treasury curve that pretty much exhausted.

And the potential supply that they can -- So from a both from a policy standpoint and helping the economy -- from a logistical standpoint I think it makes sense that they by a combination.

Of mortgages in thirty year bonds where they don't have the same type of restraint.

-- -- -- pushing interest rates even lower especially you know you look at mortgages for example.

Everybody was gonna refinances -- down it's not doing that much to stimulate the housing market because of people don't have jobs.

Then they're not gonna go out my house there is an argument that interest rates almost have to go up.

To get people back in the housing market because then they would think well the bottoms been put into better -- -- -- -- something before I lose my chance what do you think about that hearing.

Well I I think that the relationship between the housing market and the labor market is its -- -- -- correct.

Is extremely important to more jobs we can get the more help will be providing for the housing market.

But I'm not sure that I think rates would rise would would trigger consumers to get our house -- jump back in the housing market.

I think what's most important and it is happening right now.

Is that prices are stabilizing.

So we have a period of stable prices that will increase consumer confidence.

But in terms of buying mortgages it's not going to help.

All whole lot in my opinion but it will help on the margin in providing support from both the mortgage and the housing market.

And I give more faith that I do ward McCarthy thanks for joining us -- interesting discussion we --

Load More