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Cumberland Advisors chief monetary economist Robert Eisenbeis on how the Fed will have a role in balancing the fiscal cliff.
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Our -- Aren't you mentioned fed day and we're gonna talk about that but first the latest from Capitol Hill the speaker of the house John -- this morning saying the president is not being reasonable.
Senator Harry Reid the leader of the Democrats in the senate says we're going over the fiscal -- and less tax rates.
Go -- so with that we bring in our first guest -- says a sure sign of whether or not we are going over the cliff will come from the Fed.
Putting it all together.
No in the next ninety minutes Robert rise and vice chief monetary economist of Cumberland advisors joins us former Atlanta fed executive vice president director of research there.
How -- the Federal Reserve decision connected do you think -- fiscal cliff.
It has to do balancing risks and they're going to be risk -- worse they don't want to risk the the recover that we have underway already even though it's slow and so I expect.
Two things first.
They won't change policy they'll continue.
Quantitative easing they will probably stop.
Operation Twist simply because they don't have any more short term securities of any significance to.
Sell but will continue the -- buying programs as a hedge against going over the cliff.
OK so that's the thing because if they.
And all these big names that we've become familiar with from the Federal Reserve units in this operation.
Twists and in this -- -- -- -- the quantitative easing.
123.
Of the speculation about four that they'll continue basically easy monetary policy where they buy bonds and keep interest rates look all this kind of think.
But you're telling us if there and a lot of people expects -- that it expects this that they're pretty aggressive on that front today that tells you.
That they're worried about.
What the fiscal people are doing are not doing but I wonder how much effect they can really have any more the Federal Reserve.
Well that's a good question then there's a lot of controversy about that they're talking about and everybody believes there's probably diminishing returns from.
Continuing such programs but they don't have any other choice -- right the only tool they have at this point.
Well they could stop right I mean -- and what would happen if they did because some people to what -- they enable us and all of this mean neighbor get their fiscal house in order in Washington if they -- -- And they don't have -- with interest rates so low on the Federal Reserve providing this -- -- -- stimulus.
Well that's the trade off and there's a lot of people think they should.
This stop and in fact some think they've gone too far you liked.
There -- -- well I would I would I think that the risks.
On the exit side are so great that I would have paused before I think I would have argues not to continue down this road.
Simply because I believe they're probably diminishing returns save -- kept interest rates slow the recovery is underway it's not needed.
But net solution has stopped earlier but now they haven't does that change the equation now you can.
Sometimes is the expression -- into deep does that apply here are forward orders cut your losses and stop now why -- going.
I would I would cut my losses and stop now I'm concerned that there into deep and it has to do with the exit strategy because.
There's an awful lot of people sitting on.
Low yielding bonds -- high embedded capital gains in the minute they.
Here that the Fed is about the change policy they're gonna dump those securities and that means a huge increase in interest rates and an interest rate -- and that's what bothers me.
Currency get out of the -- this is Bob buys advised but I don't think that's gonna happen than way this -- -- operating out we'll see Robert -- advice as always thank you very much.
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