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PNC Financial Services senior economist Gus Faucher argues the Fed can't completely offset the impact of the fiscal cliff.
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But -- Federal Reserve is set to take more action this week as it kicks off its -- meeting to -- but with so much uncertainty surrounding the fiscal cliff.
What more can chairman Ben Bernanke and company do to help reassure these markets gusts -- is a senior economist at keen to financial services.
He joins us from Pittsburgh escaped -- back on the show.
So we -- Bernanke's been warning us for months and his public statements.
The Fed is doing everything it can possibly do and pointing fingers what's.
Pointing the finger -- -- Washington that it past due more right now as you know -- watching a dis functional DC.
Do you think the economy has already suffered for lack of a deal to -- fiscal cliff.
I think so if we look at business investment that actually declined in the third quarter and I think some of that its business nervousness.
There are uncertain about what tax rates are going to be what the spending environment is going to be so businesses are holding back on investment I think we may see it start to impact hiring in the near term.
OK let's see you think about the chairman's statements do agree with him that the Fed is doing all it can possibly -- -- We're expecting an announcement of an expansion of quantitative easing to read this week but really -- mean fed cannot solve this problem.
That that's correct you know congress and the administration need to work together.
Do you -- over the fiscal cliff they need -- avoid most of the spending cuts and most of the tax increases.
The economy's likely to going to recession the Fed can help out somewhat.
But if we see those full of monopoly of that spending cuts and in tax increases and I think we're likely -- economy go back into recession.
OK let's keep the conversation on the Fed in terms of Operation Twist which is expected to.
Which is set to rather expire.
You know purchased seeing the short term lending expire -- the long term to keep the long term interest rates lowered.
That's helped the mortgage market now we've seen a rehabilitation of the housing market so is it fair to say that the Fed policy has helped at least that sector housing in the economy.
Absolutely we've seen housing starts increase -- seen house prices start to increase.
-- the housing market is in the beginning that the turn around and I think the Fed efforts are helping there.
Buying long term treasuries buying up mortgage backed securities to help push down mortgage rates.
Affordability is incredibly high now given very low mortgage rates in the big price declines we've seen since there.
-- housing bubble burst.
And I think the Fed's efforts there really help put that housing turnaround.
I can you explain to me what exactly we mean when we talk about -- expected expansion of QE3 what we hear this week from Bernanke.
-- -- I expect to have happened is is that the Federal Reserve will announce that first of all they're going to basically put money on their balance sheet they can create money electronically.
And then they're going to go out in use that money to purchase long term treasuries so treasuries have seven years ten years twenty years.
That helps push down longer term interest rates and so that makes it less expensive for businesses to borrow it makes -- It less expensive for households to borrow and that will support economic growth.
Do you think it's a bad thing that interest rates are being manipulated lower right now considering we're not getting a message from the markets to get congress.
To get busy and do something there's no rattling the markets there's no concern there's no fear interest rates remain at these historic lows for years now well.
You know the unemployment rate is is still at seven point 7% so I think the Fed is taking the view that.
There will be time over the longer run to raise interest rates but what they're focusing right now is bringing down on the unemployment rate in trying to pick up job growth.
And I think they're saying that's their primary focus right now and so.
They -- -- there's going to be time to normalize interest rates.
But not until the labor market is substantially better and that's -- look at that that's interesting are thank you so much got -- always great to have you on our program.
Thank you out.
