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What Can the Fed Do to Prop Up the Economy?

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    Stanford professor John Taylor weighs in on the central bank and the markets.

  • Duration 3:47
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While the Federal Reserve decision is latest is due tomorrow -- Central Bank later this week.

Investors are they counting on some massive rescue from the central banks.

That's stupid bedding and good and -- -- university professor and Hoover institution senior fellow John Taylor who came up with a only ruled that the Federal Reserve uses to determine where interest rates should be.

John what do you say can the -- these central banks do anything at this point to prop up their economies.

But I think the Fed is gotten too much into the notion that is gonna help the market.

Through another quantitative easing or twists wherever they happen to be and I think that's not a good situation to be ending a lot of speculation a lot of -- about what the -- -- -- Takes the market away from fundamentals so what's gonna happen to.

Other kinds of policy -- what's gonna happen to the economy more generally what's gonna happen to profits of things that.

Should move the market ultimately so yeah I think there's too much focus on what -- the Fed's gonna do is understandable because the Fed's in there and talking about it all the time.

What can they do anything John and will have they done more harm than good at this point.

With the bond buying that's been going on with interest rates where they've been for so long.

I think the the quantitative easing that is the the bond buying they.

Treasuries the mortgage backed securities I don't -- you looked at I don't think that's helped much you can see some short term.

Impacts but then they wither away quickly in fact they wither away more and more quickly over time and in the meantime it's causing problems with respect to.

The future of monetary policy.

The future of fiscal policy for that matter when the Federal Reserve buys three quarters.

Of the new debt issued so I'd like to see them get off of this gradually -- surprise the markets but.

We don't want a situation where the markets are depending.

On the Fed for every little up and down.

Do you -- we're talking about gas prices again and for this year the average that this country pays will likely be a record it's -- think so far the average this year's three dollars and 61 cents a gallon.

How do we blame the veterans are because the way the Fed looks at inflation they're very cognizant on policy makers are very comparable where -- -- But how much can we blame the central bank for higher gas prices.

I don't that you want to blame the Central Bank on relative price movements like that when there's broader.

Commodity movements actually -- we've seen more globally.

The last couple years and as that as -- monetary policy I think is there's evidence that the very very easy monetary policy in the US has induce other central banks to be easy and that's part of the reason for the commodity boom and of course that relates to.

To oil and gasoline as well.

So -- -- didn't monetary policy and fiscal policy.

Hynix -- in -- trickle believed linked at this point because the Fed has been essentially giving lawmakers a free pass.

By buying the vast majority of new debt issued until the Fed stops doing that are standing ready to do that.

Will the lawmakers.

Not get off their butts and do something to fix the fiscal problems.

-- certainly reduces their incentive that they think the Fed is gonna -- -- and and buy more bonds and reduce their incentive to do with the debt but it really doesn't help the economy because the ultimate problem is that.

Borrowing in growing debt and that the Fed buys and of course then that will bring.

About inflation sooner or later down the line -- and that's we should be concerned about their it -- risks creates risks in the future.

In the future maybe come sooner than we like.

John it's great to talk to you is always very thoughtful.

As as always John Taylor welcome back any time.

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