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Is the Fed Out of Ammunition?

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  • Description

    Charles Schwab senior vice president Liz Ann Sonders on how the Fed can still help the economy.

  • Duration 4:00
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Ben Bernanke's testimony we bring in -- and Tsongas is chief.

Where the senior vice president and chief investment strategist at Charles Schwab could see is always.

Probably -- Nicole talked about a moment ago as a bleak outlook and there was an exchange just really few minutes ago between Bernanke and senator Bob Corcoran which he did try to outline the options he has left there's been some debate about this.

What can the Federal Reserve do Bernanke will tell you there's still more that could be doubt you -- the bag of tools and everything else.

What do you think this -- fed still have power to help the economy.

Well look I think there's spend a lot diminishing returns with these various forms of easing whether you look at the impact on the economy -- look at the impact on the stock market.

We had a big move in the stock market and I think of a little bit more of a move in the economy with QE1 a little but less so in QE2.

And even less -- Operation Twist it does not mean that they're out of ammunition that I rank.

The next move is likely to be because -- did -- -- done the extension of Operation Twist sadly to the same.

Deadline is fiscal clip so we've now added a monetary -- to the fiscal cliff.

But what I think is being debated right now is if they do another round of quantitative easing.

Where would it likely be focused and and and our view is it it probably won't be on treasuries has has been the case in the past that they -- may be.

Will move back toward more focus on mortgage backed securities to at least try to give support to what is now recovering housing market and bring mortgage rates down.

-- pretty good numbers by about housing today Richard talking about a little bit later on in this hour but you're already brought up -- seems to me to be the absolute key issue and all of this the and this has nothing to do necessarily with the Fed but it's a congressional issue -- the fiscal cliff so and Bernanke goes back to this in his testimony what odds are you putting on them not.

Getting something done we always assumed that these things get figured out and and they take us right up to the brink but other stronger -- this time that.

You know we might actually fall or slip off this cliff.

I guess it depends on what you define as the bring some people define the election is the brink and I think the likelihood of getting something done pre election is quite low.

Whether something can happen in that we in the lame duck session is a different story and I think the most likely thing that would happen.

Unfortunately or fortunately depending your perspective is.

-- some sort of push to the deadline so that then it allows -- the new congress and whatever form the the entire structure takes.

To deal with it say in the first three to six months of the year assigned that's the most likely scenario of a pre election I think very -- Brings up a question of how much risk and investors should take -- but before that.

-- wanna go to moments ago and this is the exchange I alluded to between us -- -- corporate.

-- chairman Bernanke in terms of the options that the Federal Reserve -- here and it's.

Well we their range of possibilities and I and I don't want it.

You know gives any signal that we're choosing one of my mother of -- but what does illogical range includes different types of purchase programs -- conclude.

Treasuries or conclude treasuries and mortgage backed securities those are the two things were allowed to buy.

We could also use our discount window for for lending purposes but you know that's that's another possibility.

We could use communication to talk about our future plans regarding.

Rates or or balance sheet.

And a possibility that we have discussed in the past is cutting their interest rate we -- in excess reserves as a range of things that we could do.

Each one of them has cost and benefits and that's an important part of the calculation.

And as he makes that calculation final thing -- and -- anything that moves the needle there from the chairman what he laid out are now.

Well you know I think that the mention of possibly lowering -- eliminating interest on excess reserves is key because that's what the European Central Bank tested.

And they have a bigger lending problem over in Europe that we give -- is lending growth has picked up to about a 5%.

Positive pace and that's decent it's not incredibly strong so I think the Fed is going to watch what happens in the lending environment in Europe to see whether that had -- Benefit and that I think would be increased as a consideration to the extent we see the needle get moved in terms of lending in Europe.

Was and Saunders Charles Schwab always great to see you thanks for coming up to the --

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