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Former Dallas Fed Vice President Gerald O’Driscoll and RBS Head of U.S. Treasury Strategy Bill O’Donnell on the Federal Reserve’s decision to no...
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It well the Federal Reserve sounding more cautious on the state of the US economy today but did not announce any new action to help stimulate growth.
-- is no move at the right move.
Here with a reaction is bill O'Donnell he is head of US treasury strategy at RBS and Jerry -- Driscoll senior fellow at the Cato institute and former.
VP at the federal Dallas reserve reserve their Federal Reserve Bank of Dallas.
Our guys good to see -- Gerri first do you the rest of the summer.
Work we're gonna see how the economy works without any stimulus at all it's about another month and a -- before the next fed decision.
First of all was that the right decision and secondly how do you think the economy behaves.
Well I think it was the Smart decision the Fed I think has decided to take themselves out of the election -- move to the sidelines.
I think they realize there's not much good that they can do additional good.
And I don't think they wanna be the focus of the debate but -- right now the economy's gonna work on its own in a background -- what looks like a slowing global economy.
So what do you think happens -- over the next month and a half.
All we're -- us continue to slow and I completely agree with the Fed's assessment that re the if we don't move into a double dip we're certainly gonna move into a situation -- we're growing so slowly that no one could discern the difference between that and a recession.
And dollar bringing -- here Jerry says he thinks is definitely gonna slow but yet you didn't want to see the Fed to announce any more easing today.
Yeah I thought it was.
Premature and if you -- -- I did and listen to the chairman's recent testimony to congress.
It seems like he he was still struggling with the notion of whether this downturn was transitory -- something more permanent because of all these uncertainties.
Whether they're geopolitical.
Political in the United States Europe.
One thing after another.
I -- share what they did and I think what's very important is the subtlety and then changing the contingency of the language.
From being prepared to act.
Two will act and that sort of tells me that they're what they're trying to do is to move any action to the September FOMC meeting as you said in five or six weeks.
And at the same time I think they'd be more than willing to act between meetings fifth if the situation deteriorates rapidly and for some on foreseeing -- now -- -- Now Jerry.
You know the claim of course is that that it we need these super low interest rates almost at 0% in order to stimulate.
Growth and particularly stimulate buying in housing purchasing of housing.
I guess as an exercise I know there were all kinds of different conditions but I went back to 2006.
When the housing market was booming we get a Fed's fund rate then of over 5% it is twenty times lower -- -- that right now.
So the fact is is that you can go at least twenty times higher -- we are now.
And and find as circumstance under which housing would look good.
Is is are we having -- -- -- productive affected the economy as a result of these super low rates.
There -- certainly unintended consequences -- especially the large banks are just stopped.
-- -- non interest bearing deposits.
That they can't deploy it to any kind of ordinary banking function lending and I think it's leading to -- stupid risk taking like we saw with JPMorgan chase and London.
Are so there definitely unintended consequences to these ultra low rates.
It in bell in the last word -- you -- a US government bond strategists it is your job -- look at the forward we have eight major rate decision from the ECB tomorrow we've got a major government jobs report on Friday.
What do you do today.
What.
I do today I'd love to talk David's point about Fed's done summer without fed stimulus.
We still of Operation Twist going on through the end of the year that's removing duration from the treasury market.
At the same time I think the Fed Chairman if he was on the -- saying that there is a stock affect.
To these actions that will remain stimulative even though the flow -- -- IE QE3.
It is diminished.
And I I also like with the Fed's doing we're starting to see very good inflows into structured credit into sub prime assets.
Corporate credit high yield and certainly the housing market.
People flooding out of the low rate treasury market in this is exactly what the Fed designed.
It was spoken about by Bernanke -- Jackson Hole in August 2010 the portfolio balance channel affect.
They've got at risk assets on the run I think they should be very pleased and therefore we do expect more action to keep pump priming these these.
Brisk assets even higher or to create more stability in markets like housing.
-- thank you so much threat to bill O'Donnell and Gerry --
