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Former, Federal Reserve Economist David Jones Cato Institute Director of Financial Regulation Studies Mark Calabria on Federal Reserve policy’s impa...
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So we got up today the Federal Reserve deciding to make no changes to their policies and vowing to continue the bond buying program until there was clear sign of an economic rebound but our next guests.
Question whether the so called QE3 is really helping.
Gas and more than just a few people asking that question joining us now is David Jones DNJ advisors CEO and former Federal Reserve economist and -- Calabria -- Cato Institute director of financial regulation studies thank you both for being here all right David com.
Look clearly the money spigot is open the punch bowl is free and the party is still rolling on.
And the Fed today and this was a non -- statement as far as I'm concerned no big surprise fifteen days before the election.
But how Long Will the Fed keep this going they talk about a recovery.
We are seeing some signs of that but obviously do you think this is having an impact QE3.
Not as much as I think the Fed is hoping.
I remember that.
Decision back in September was -- full blown decision.
And the Fed did everything it could -- this QE3 open ended buying forty billion in mortgage backed securities every month.
That is never gotten into a situation like that they even extended the period over which we're gonna have.
Essentially zero interest rates outlook.
Mid 2015.
I can't even forecast the economy for the next week let alone 2015.
So we really do have a situation -- -- the Fed has done.
All they can and my only concern is I think it's the politics and Washington and the decisions on the fiscal side that may have more impact on spending and employment than what the Fed is doing so I think the Fed's going to be frustrated here at some point.
Well to be fair market Ben Bernanke has said over and over again to congress.
You guys have to be a major participant and all of this.
We can only follow what mandates we follow and they have.
Thrown everything in their -- -- you -- see whether it's working look at housing prices they looked like it bottomed housing sales are starting to look a little bit better.
To be fair and then the stock market I mean they have forced people into the stock market nominated.
Numerous numbers but.
Look they've started to move to the upside over the past two years so the question becomes mark.
It is it more about.
What happens when they pulled the rug out when they have to start tightening.
Can this market -- economy stand on its own after all of the stimulus.
That is the global questions certainly to be fair -- -- -- he has been very vocal with congress you need to get your act together.
Now of course I think much of what he's done has facilitated the ability of congress not to get their act together I think of the cost of boring for congress was higher.
They would actually be forced to do -- they -- quicker.
But again the question is what happens when rates are gonna go up and -- I think it's unrealistic to think that the rates could stay at these current levels for too long so web as the housing prices and rates go up -- happens of the stock market would rate started -- So again -- I'm worried that we're trying to basically build another sort of asset bubbles to make up for the last asset bubble that burst.
And what we happen when this one -- so again I don't really feel like we're building the fundamentals of the economy.
I'm very -- one of the things in a statement today that has been consistent is that the Fed said.
They're gonna keep things highly accommodative even after the economy starts to shrink that.
You have to remember monetary policy is not -- Friedman always -- to like to say long and variable lags.
It doesn't take effect until much -- -- so.
The point with that is you really need to start pulling away liquidity when the economy starts -- strong not long after it looks strong are you get yourself in trouble so.
I'm very worried about the outlook a couple years down the line.
David RAI think backed Alan Greenspan in the housing bubble that was created a new look back at that what concerns do you have.
About the Fed's easy money policy -- thing going on for sometime now will -- do more harm than good in the long run do you think.
Two things.
The stock market is up what 1213%.
This year -- I'd say -- may be 70% of that three quarters perhaps of that is because of the Fed's easy money policy maybe the rest because.
Earnings have been doing fairly well all of that although they are starting to weaken now.
Also rates have been as mentioned a minute ago artificially low distorted by the Fed's.
Zero interest rate policy so just ask yourself this question.
What -- were all surprised next year.
With the new president.
A pro business president and all of a sudden the economy starts to boom when the Fed has pumped all this liquidity into the economy.
And then the federal have to start tightening sooner than expected.
Interest rates will shoot higher much higher than I think the -- engines and the stock market could crash.
I don't we don't vote although I don't know what happened hi mark yes or -- we -- -- -- This is a very real concerns -- yes that's something we need to keep an eye out for David Jones -- advisors CEO former Federal Reserve economist mark Calabria the Cato Institute director financial regulation studies please come again something tells me we need you back thank you think they'll let us thank you.
