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Harvard Economist Jeffrey Miron on Federal Reserve policy and concerns over the looming fiscal cliff.
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Of course there's the Fed today said it will leave interest rates unchanged and will continue QE3.
Pumping money her air what -- you wanna call into the economy.
Joining us now on what he makes of all this Harvard economist Jeff -- and -- thank you so much your being here you know they did.
-- -- -- -- Basically change nothing in the Fed report today except for two things there was change in language in the police -- said that the inflation has picked up his energy prices.
And they did warn that the global markets pose some downside risks what do you make of -- that.
Well I think on the inflation -- also try to emphasize that core inflation really hasn't picked up yet so.
They don't seem to be particularly worried about inflation -- that's one reason why they think that they should be.
Continuing to pump money in the economy and why there's not much risk to keeping interest rates low.
-- -- on the global demand that's clearly an issue.
US companies are to have earnings down as you just mentioned and then Europe is clearly in recession and the prospects are it's probably gonna get worse.
First 36 months a year -- so.
That affects the demand for US goods and services and that's can also contribute to a slow growth continues slow growth in US economy.
-- does that then make -- case -- QE basically infinity at this point I mean in the statement as well they say even when the economy turns around they will continue.
To keep buying assets.
Well you know in the standard model standard keynesian friend mark as long as you're not seeing inflation pick up.
If you as long as you see employment above what's regard is full employment say something like 6%.
Yes there is a standard argument for why you should continue to use monetary policy to try do -- improve the economy.
Now what we don't really know because we don't have great experiences whether.
At the point that we've gotten to where we're just pumping so much money so -- the economy over an extended period.
Whether there's some additional risks that at some point expectations of inflation will get out of control or the Fed's ability to.
Un do its monetary stimulus will get difficult -- constrained by political factors and so we're not quite in the textbook -- anymore and it might be quite risky.
Right and that's why we've heard from numerous companies Beckham all they do is complain about the uncertainty UPS Dow Chemical.
Xerox quote from the CEO Ursula Burns she's -- -- has been hit by widespread economic uncertainty.
Especially in the US so that's not that's sure that's global but that is political uncertainty as well.
Our companies can't figure out a way to go forward until someone someone makes a decision.
I think that's right I don't think the Fed is the main reason for the uncertainty is probably contributing to some degree but I think it's fiscal issues.
Yet most people are aware that under current projections are debt just gets bigger and bigger to a point it's not sustainable.
There's not any political -- agreement on whether we should raise taxes or whether we should cut spending such as Medicare.
Collar defense in order to try to deal with that and so there is huge uncertainty.
People are also facing something that date may be -- certain the notion that taxes are gonna go up a lot of January wanna ask -- to discourage things.
You know fiscal cliff actually really hitting home -- mean we're seeing in now an analyst reports you seeing company reports everyone is talking about this fiscal cliff and yet.
The president one point said he he has no Brownstein has go over it -- what happens if that if we actually do get to that point where we are you know.
Jump -- over it like at -- and Louise.
Well in -- two sides of the fiscal -- there's a tax hikes and there's a spending cuts.
My judgment is actually -- the spending cuts are mainly a good thing the US is spending way too much money.
And us a lot of the stuff we're spending -- on is pretty wasteful so most of the spending cuts I would be perfectly happy with and I don't think that they will do much to slowdown in the economy.
The tax hikes are totally different story those are clearly a terrible idea.
-- to some extent we may already be seeing those effects it may be that the current slow growth is partially anticipation.
So we're not necessarily going to be falling off a -- right on January water right after generally want we're already sort of going down that -- slowly yeah because of the anticipation of those tax hikes.
That's a problem and you know what what.
Now does that -- -- make things retroactive anyway so we file off the cliff when it has bounced right back over to the other side come January.
Jeff Miron Harvard economist thank you for your insights.
My pleasure thank you.
