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Former Federal Reserve Governor Frederic Mishkin on Federal Reserve policy and government debt’s impact on the economy.
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The Federal Reserve today saying it's not ready to leave the party just yet.
The Fed continuing its aggressive push to boost our down economy to the tune of 85 billion dollars a month.
In bond buying joining me now former Federal Reserve governor Fred Michigan.
He's a professor at the Columbia school of business and my former professor there professor welcome to the show it's great to have you back.
What do you make of the Fed's move.
Well there really wasn't a whole lot of new information here it's not surprising because it was -- meeting where they've they really did something you are very different and sort of a different procedures.
And also the bond buying program that really was no new information that would haven't change that.
-- you know they did talk about a little pause in the economy which we -- actually see in terms of the GDP numbers.
But does there -- some actually signs of slow growing strength particularly in the housing market but it doesn't change the fundamental view of the economy that it's growing but not great.
And that require all the way to go our investor I think -- -- you agree if thought that was a little seven point 8% the Fed itself says it's gonna keep its.
Put to the pedal until we get to six point 5% how long might that take a -- can be quite -- -- in fact.
Did that the -- therefore cats and actually the previous discussion.
Was telling us that they expected keeping the federal funds rated zero for a very long time -- the end of 2015.
And that's consistent with their threshold so.
It is gonna be very long time it's not that the economy is roaring ahead is not want her head and actually any advanced country at this point.
And that's a big problem for them.
-- seems mail that -- the advanced countries Europe the US we're all in the same bucket were barely growing if at all.
Shouldn't we be concerned though that the Federal Reserve -- tripled its balance sheet almost three trillion dollars at this point well it.
They -- there are always issues here but.
I actually think that a lot of people gotten is just dead wrong which is they.
Are sort of looking at what -- -- old style monitor risks and that when the Fed expands the balance sheet.
That that means that there's going to be a lot of inflation because there's -- -- growth and that's -- high powered money.
But I think that's just completely wrong in the current context first of all a big change the Federal Reserve made is that it pays interest on reserves.
So a lot of this increase the balance sheet -- gone into banks just holding a lot of excess reserves which really do not have a big impact on the economy.
Furthermore doesn't really expand the money supply very much so the old style -- viewpoint.
Which has been hard done by a lot of commentators and also many Republican critics of the -- saying this would lead to a lot of inflation is just not happen.
And indeed one of the issues for the Fed is that inflation is actually too low it's below the two brand goal.
Well -- it does not earnings for that reason alone.
We -- what happened in Japan with low low nonexistent interest rates for so long it's like we're on an IV drip and we can't get off of it because we need that.
At it that we need the Fed involved dollar time how are we gonna get this economy back on track -- we don't have to have the Federal Reserve.
Pumping liquidity into the system.
Will the Federal Reserve has to to have to do what has to do but.
All a big problem right now is that I -- big dragon economy is the shenanigans that we see in a political process.
The unwillingness to deal with a long term fiscal issues is really a very important -- does driver of increases and uncertainty.
That are holding back but both household and and -- business spending.
But my view is if the if -- -- actually had sensible political.
Process.
That you when you assets at no.
We have to -- -- but we had a chance you can figure that -- professor.
-- -- be another resilient year old Nobel -- that absolutely absolutely right that we actually were heading in the right direction that -- -- is the level discussion it's been extremely disappointing Simpson Bowles was well yeah I don't agree with -- our -- I -- talk you about another important number -- possibly more important number that we got today.
That was the GDP.
This is that economic growth in the quarter.
Coming down a tenth of a percent in the Wall Street Journal reporting this afternoon.
That we haven't had and it economic expansion a single quarter of down negative GDP growth.
Without a subsequent one since 1977.
So this is not bode well for our economy.
No it certainly is a probable pause the economy but I think you've you've you gotta look through this.
The GDP numbers fluctuate a lot.
In this context instantly and -- a quarter by quarter basis.
I think it basically and we look a little more -- telling the numbers which I haven't done yet because I just finished teaching.
But the key point here is that that there are some signs that things could stabilize.
The problem is that I'll be given the uncertainty about what future taxes are going to be whether -- a deal with a serious fiscal problem in the future.
This is actually self inflicted wounds that this was not happening I think US economy doing very well but unfortunately this is the situation -- Now are right professor thanks for your help today appreciate your time that you know that my -- works in the mail okay that is just a flood of money.
Thanks so much.
