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No Stimulus Today, But QE3 in Future?

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  • Description

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

  • Duration 3:37
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Let you wanna talk about the Fed as you know just about an hour away from the latest policy decision our next guest.

Does not think we'll get more stimulus at least announced today but he is convinced we will see so called QE3 sometime this year joining us as -- McCartney's.

-- c.'s chief economist there Ford great to have you with us greatly in the Wall Street Journal today saying that this unconventional.

Measure and financial measures.

From the Fed always come after a similar pattern and that -- duke with private payroll growth worsening the economy stalling -- contracting stocks weakening and really just an overall sense that.

The sentiment is is being weighed upon so.

Again were in that similar pattern -- do you expect the Fed to act -- at least in its language.

Well -- I don't expect the Fed to do a whole -- today I do think they'll likely to.

Push out the calendar reference and in in terms of the time period they expect to keep rates flowed through to the middle of 2015.

They do have other tools that they could use they could expand the balance sheet they could.

Lower the IO ER and have also told us that there looking at new tools but frankly I think it's too early for all of that except pushing out the calendar reference.

Over the time period they expect rates to stay very low.

Ward a lot of market watchers expecting some sort of action in September from the Fed if we don't hear a hint towards that.

Today does the market sort of recoil in horror me.

Well I'm not sure how the Fed can -- of that actually.

They have -- -- the policy statements tend to be pretty formulaic and and the Fed doesn't usually you know give us.

Hints about where they think they might go.

Well the seasonal language about the economy to say something you don't hit world -- seems like it might be stalling so when the market interpret -- as.

They're gonna make a move in September and so be -- Yes well what they're going to do is tell us that the economy has slowed just technology in reality.

They'll probably also talk about increased downside risk -- to Europe.

And I hope but I'm not sure they'll do -- still talk about the the downside risk presented by fiscal policy as well.

I think the general message from the policy statement today will be yes we're going to provide more stimulus.

But I don't think that we're gonna get a big bank today.

Meaning you mention the -- we are the lowering the interest rates they're paying on excess reserves is thanks you know store their money.

With the Fed explain -- if you will why that would provide stimulus.

Well that's a very hotly debated issue actually whether it would -- not.

-- in theory if banks were not -- provided.

With interest by leaving their reserves that the Fed.

Then maybe they would be more inclined to to -- So that's the argument in favor of lowering the Ohio we -- It's not a lot less political.

Then in steel -- then they instituting another round of Q week.

So why not just announced -- you know cut the interest on it on the excess reserves to today.

Because there are concerns that some of the other consequences would not be good.

Specifically at least from a logistical standpoint the Fed is worried about.

The the health of the money market fund industry because when the time comes for them series -- -- all these reserves from the banking system.

They going to need a large and vibrant money market fund industry to allow them to do.

Reverse repo -- furthermore there is a political aspect of it if they were to lower rates this low.

We could find ourselves that -- to zero we can find this situation with the banks actually start charging customers for leaving reserves.

At the banks and that would become very political.

A look at interesting take ward McCarthy thanks so much thank you we wanna get to celebrate.

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