Fox Business
Expand
Browse All Video
Watch Live

You're watching...

Growing Debate Within Fed Over Bond Buying?

Details

  • Description

    Former Fed Vice Chair Alan Blinder on the impact of Federal Reserve policy.

  • Duration 6:29
  • Date

Clips

Also in this playlist...

Latest Video

Auto-advance: ON

Auto-advance
View All

Transcript

This transcript is automatically generated

The minutes from the Federal Reserve show there is now maybe more heated debate over the timing and amount of asset purchases and the Fed has been doing 85 billion every month.

So do these purchases need to and even before unemployment drops.

There's a book after the music stopped in these different of person we are always pleased to see you think it would have been accomplished -- it's all what happened today we got the Fed notes issued -- -- kind of -- it had a big effect on gold and then then we have this Twitter to this tweet that comes up from Bill Gross of Pimco saying that it looks like there's a good better possibility.

That that bond buying of the Fed in the money pretty might end before 2013.

We have snow is so folks saying and I'm gonna quotes.

Milano -- -- he's an economist at TD securities the minutes show what committee that is far less unified -- at.

Any other time -- the past few years you agree.

Not very much you know I think there was one word in this I sort of looked have to see what if you look at me excited about.

It says many participants expressed concern.

If that had said on number of participants expressed concern I think it would be essentially duplicating the previous meeting.

There has been a -- word that it -- never leaves a lot does it not not as much as the markets take it to believe it means something on number when it says.

-- that's probably I don't you know 89 and I don't know.

But it's not three that's for sure so you get this very small Nuance of difference and markets do what they do which is overreact.

To every stimulus up or down.

If you asked me do I think this means that there's much of a chance on non trivial chance.

That -- asset purchases and before the calendar year is over -- now.

But if you ask me is the Fed badly divided on this I say what everybody says yes -- -- We are the fact that the discussion is being had that is something that the markets seized upon today and so did as we know Bill Gross of Pimco who tweeted out watch out below -- -- The said the talk in the market today was less than a percent for the Dow Jones industrial so let's not overstate it right.

But credit credit gyrate a bit more because in essence of what the Fed has been doing has been very much the reason a lot of people -- back into equities they felt.

The Fed -- was there the pillows underneath Stoxx Europe.

Well the -- wore underneath bonds actually I mean the Fed is not gonna react unless there's something drastic that happens in the stock market.

The bond markets a -- thing as we know these whole all of these Q leave.

Programs during that the bond market one way or another either it's a whole level of interest rates or -- flattening the curve that's what the Fed's trying to do that's not a secret.

-- but you know I always said I said years ago when they use -- talk about the Greenspan put and then we have the market crashed.

Acidity make good on -- -- Citi.

-- and I don't -- I don't think you should make a bet on a Bernanke put on the stock market doesn't mean -- stock market through well you could over the past year that we've had a brilliant round.

Sure but you're you're -- you're saying this -- at the end of the year looking back.

And -- right but at the beginning of the year who knew what really what's gonna happen.

Let's let's talk about what is has happened as result of the of the bond purchases we have had good trend it.

Down although the last unemployment number did tick up just.

Tenth of a percent.

Is is the danger because obviously the banks have not increase their lending to the point and and frankly businesses have been hoarding a lot of cash as well that we talked about so the the money is is is being printed by the Fed but it's not being circulated isn't that the problem.

That is the problem.

But so how do you get it to be circulated it's not real money printing that's a problem.

It's a circulation that's a problem first the what the latest news on that front -- pretty good if you've noticed over the last few months commercial lending by banks.

Is going up at a nice pace if that pace would continue for enough to justify the money -- I think so.

Because I don't think it takes much justification.

You've got and neither -- Ben Bernanke you've got enough an economy -- -- -- say it's dead in the water but it's kind of limping along.

And the Fed long ago lower the Fed Funds rate as low as it could be and you could knock a few more basis points out of -- but it's basically a slow.

As it can go and then the weapon of the -- the two weapons of choice became.

-- buying assets.

And communications the so called forward guidance on the Fed is working those two.

Pretty hard.

As you know I think I've mentioned this on the show before I've been trying to get them to lower the interest rate on bank reserves.

You mentioned banks to sit on the support of cash.

They're not -- a lot of money at 25 basis points but as I sometimes say my bank only pays me one basis point on line.

-- -- -- -- cheer you took on my checking account I'd like to see the Fed go back to where it used to be by the way zero.

Alan you just said that that there's more of a pillow underneath the bond market are you worried about a bond bubble bursting.

At some point there are so many people in treasuries over the past year and a half.

If suddenly.

Yields were to -- for just 1%.

You could see price drops a little bit more dramatic and people can indeed while inflation adjusted lose money on -- some -- If your timeframe is long enough and the of course the crucial thing is no one knows when that timing -- They will lose money on bonds it's not a probability.

It's a certainty about to worry.

That's a worry I don't see it imminent.

Because of what we are saying about the Fed and because the economy's not that strong -- by the way.

If the Fed would continue doing exactly what it was doing and the economy starts growing 34% a year I wish.

-- interest rates are gonna shoot up without the Fed doing anything so if either of those happens.

We're gonna see.

Very sizable capital losses on long term bonds professor Alan Blinder from Princeton author of after the news went as a music start again right away so we know that it's stopped you wrote about it.

I don't know when you know it may be starting sooner than we think you're already seeing people.

Moving into riskier things for getting some of the things they said they'd never forget you know.

Let's hope your little bits of music has started or any good news or professor blinder thank you good to see good thank you so -- public cash.

Load More