The FOMC announcement for the June 19-20 FOMC policy meeting will be released later today.
While the Fed is expected to leave its policy rates unchanged markets will be watching for signs of more quantitative easing or for Operation Twist 2.
But Martin Feldstein, Harvard professor was on Bloomberg TV saying that the monetary policy tools have little real effect on “actual economic activity”. He says it helps the bond and stock market and potential mortgage borrowers but it isn’t making much of an impact:
“The people who say why are we taking the risk of building up the Fed’s balance sheet, putting a lot more liquidity? They will at the meeting at the Fed this week say, maybe enough is enough. Let’s not continue with these policies of quantitative easing.
…The Fed has been saying we will do whatever is necessary. We will move if the economy gets soft. Well the economy has been getting very soft in recent day. So in some ways it’s going to be hard for them to say well we promised we would act if the economy got soft. We know have a string of bad news but we’re not going to do anything. So i think they’re more likely than not to do something, not a big thing, something to check the box. My own judgement is they shouldn’t be bothering.”
Feldstein is cautious about the risks of additional QE in the future when the economy starts to heat up because he thinks the Fed’s exit strategy, namely raising interest rates, will be a political landmine. “If the unemployment rate is still very high, it’s going to be hard for the Fed to actually use that exit strategy.”
Watch the entire interview at Bloomberg TV:
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