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The Fed releasing a statement today saying it sees modest growth in the economy this is a change from previous statements where the Fed -- moderate growth this is a downgrade essentially.
Of the economy.
So does this or any other language and that's David give any clues about when the Fed will begin tapering its bond by joining me now.
Jerry -- Driscoll -- former vice president of the Dallas fed and we are always pleased to see -- Gerri great to see if thank you so much for coming.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Of the stock market now I remember Paul -- -- remembered Greenspan.
They did not live in fear of how the stock market would react to their decisions -- today they were concerned about it but they didn't act in fear of I get the sense that Ben Bernanke and company are afraid of how the stock -- is gonna be -- and that affects their decisions in my right -- wrong.
It certainly seems like they're reacting to short term movements in the stock market.
-- we saw him back away from misstatements about maybe -- -- would occur earlier rather than later because the markets went down so I agree with you.
-- -- had a full press PR campaign paid in order to try to convince the market that that they were not going to be stopping their their bond buying anytime soon but what -- tell us what the implications.
Of this are.
This is for the overall market when you have a -- that that seems to be very concerned perhaps even more concerned about the stock market.
And what's happening with the with the general economy.
Well I -- I think you're right and you know the general economy is not that good -- especially if you look at labor market statistics we haven't recovered.
Total nonfarm employment we have all time record number of discouraged workers six point six million.
The labor force participation rate has been dropping.
In all during the expansion so it is a very weak market.
-- -- and on the other hand by.
Obsessively looking at short term movements in the financial markets the stock market as you say it -- -- -- is focused on the wrong thing.
Well so what should the Fed be focused on -- It should be focused on long term growth enhancing monetary policy and that's not what it's doing.
And how would its policies change if it did what you think it should do.
-- -- how would its policies change that is what would Ben Bernanke do differently.
If he had the same concerns you do.
Well for one thing this payment of interest on reserves is insane at this now we have two trillion dollars of reserves in the banking system -- most of which are excess reserves they're paying a quarter point.
Doesn't sound like much but that's five billion dollars it should be going to the US treasury and it is just more importantly it's discouraging lending by banks.
So essentially what they're doing is rewarding people rewarding banks for keeping it more money on research but that.
That regulators say they have to do that otherwise you know were in danger of another 20082009.
I'd I don't see it I don't see and I think this payment of interest on reserves was a big mistake in whatever justification there was for it at some point so long since passed.
Okay one thing that move the market based on what the Fed said today was.
Was their statement on inflation originally we saw interest rates by the way spike today about 3% then they came down after the Fed statement specifically because the Fed said.
As follows inflation.
Persistently be -- it's 2% -- could pose risks to economic.
In other words the Fed is saying that disinflation.
Is now a bigger risks to the economy than inflation do you agree or disagree.
I don't agree with out of all but it reflects a long term sentiment of the chairman himself.
-- going back to his academic days.
So you don't you think that inflation should be a bigger concern in the minds of the Fed then disinflation right now.
Yes well but that's -- -- what -- did not only set a fundamental disagreement but that.
That the notes that whole goal this calculation by the Fed in which they are burning up a lot more money and I could have.
Many more implications about our economy long term -- than anybody ever consider.
Yes and and by the way if they followed my advice and stop paying interest on reserves and they would have to face up.
Rather quickly to the problem of how they back wolf this tremendous monetary east because.
Once banks started.
Lending and we started getting warmer relationship.
Between creation of reserves and then eventually creation money and then inflation.
Then they would face it so -- It's it's a peculiar situation -- worried about this inflation but they did create a situation in which if they want to do something of the disinflation.
Then they gonna have to start worry about it.
Generally I have to run but I got to ask our our rates -- spike could despite what the Fed is trying to do.
Well as your previous guest said long term rates are going up short term rates are under the control of the -- Jerry -- Driscoll former fed reserve of Dallas vice president economic advisor great to see again Jerry thanks very much -- if we.
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