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PNC Financial Services senior economist Gus Faucher gives his outlook for the Fed and economy.
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Call thank you very much while stocks are rallying just a little bit now on the Fed chairman's comments but what do economists really think about what mr.
Bernanke had to say.
Over the last two days joining us now got.
Okay PNC financial services senior economist Gus thank you for joining us but we just live from -- bombs on the Beige Book up perhaps a moderate.
Click downward in the overall.
Outlook of the economy does this perhaps.
-- in QE3 sooner rather than laid out.
Well we haven't gotten much of an indication from chairman Bernanke the QE3 is imminent.
Both in his testimony over the past couple of days and then in the FOMC statement and then the minutes we got from their from their earlier meeting.
It made it sound like that they were considering it but the conditions didn't yet warned QE3 so I think were unlikely to see it when the FOMC meets at the end of July.
We may see that their next meeting which is mid September.
The problem is -- the market is clearly Jones -- I mean it's moved up on that news right and what's interesting note is it's the -- diminishing returns.
First -- QE we saw the S&P jumped 55%.
Next round now only 16%.
So does that also something that they're thinking about as well that you know what we get.
-- a couple days and it doesn't do everything they needed to do.
Well I I think that's right and I think that's certainly one of the things that they're taking into consideration.
When the Fed met last time they discuss both the costs and the benefits of another round of Q -- Did the indication is is that they still think the benefits would it would outweigh the costs at this point.
But I certainly think it is the case that there there are limits to what QE can do I mean we have long term rates that ten year treasuries at around you know one and a half percent.
So how much lower can -- go not much but the Fed still thinks that it's worth it at this point.
-- wanted to talk about housing as housing the key to the recovery can we have a recovery with -- the housing industry turning around because in the last couple reports we've actually seen.
Perhaps some nice uptick in housing although albeit modest is that critical to the recovery.
I think -- -- going to be a part of the recovery but it isn't going to drive the recovery.
For one thing you know housing is just a much smaller part of the economy now than it was a few years ago.
Which means the balance even if housing activity increases is going to be comparatively smaller so.
We are seeing a turnaround in housing no question about that we -- got good numbers on starts today we got good numbers yesterday from Manassas national association of homebuilders.
But we need to have continued business investment we need to have consumers pick up their spending a little bit and for that we need some better job gains as well.
Yeah and so that brings us all back home right for -- while we spend every day and -- it was overseas in the in the heart of it talk about Europe.
Now since it went on to other nice Europe is much anymore now we're really seem to be more focused on this fiscal cliff.
As you mentioned the jobs market is it -- about the US economy now.
Well I I think I still think the Europe is a big overhang on the US economy right now.
It looks like things have gotten better -- but certainly I think people are still nervous that things in Europe to go south rather quickly.
At the same time we have concerns about what's going on with the election.
What's going to happen with the fiscal cliff so I think that's just adding to all of the uncertainty out there.
That's making businesses and consumers anxious I think that's restraint on growth.
I'm very quickly -- and face -- brings up a good point no matter what we do here was still very much at the mercy all of Europe and for that matter China.
That is continuing to slow down says only so much that can be done here would you agree.
I I think that that's certainly true I think that a lot of the problems are coming from -- overseas but on the other hand you know exports are just a small part of the US economy.
So I think if we have stronger internal -- drivers of demand from the housing market from business investment from consumers.
You know that should be enough to work through at least modest problems overseas.
But if things really -- south in Europe and I think that's a big problem for the US economy.
And probably the global economy I've got -- okay are the heads -- -- thank you very much for joining us really appreciate it.
