Former Fed Governor Kroszner: Fed Still Has Arrows In Their Quiver

Randall Kroszner, former Fed board governor, spoke to CNBC this morning about the Fed’s future decision making.

  • 0:45 Look at the impact of the Fed saying they would “consider” doing something. That had an impact on the yield curve and expectations. So the Fed is not just pushing on the string.
  • 1:20 The Fed does still have a lot of arrows in its quiver.
  • 1:50 We’ve been hearing for two or three years the Fed has nothing they can do.
  • 2:15 Look at what happened in the 1930’s? The Fed didn’t do anything, and unemployment went to 25%, GDP contracted at a third. We’re getting a slower recovery because we put foam on the runways. The repair and recovery is going to take a little longer.
  • 2:45 The Fed is doing the right thing, it is trying to change expectations.
  • 3:05 Open mouth operations, rather than open market operations, is what is going on right now. It is all about managing expectations.
  • 4:25 Just letting people deleverage is what happened in the 1930s. It emboldens us to move now.
  • 5:15 It is threading the needle, that’s where the Fed is right now, and there will be critics on each side.
  • 5:50 The Fed is trying to manage inflation expectations right now, whether they can get the balance right is the key issue right now, fighting disinflation expectations.
  • 6:50 If people think prices are going to go down, they don’t buy, and that’s the problem Japan got into.
  • 7:20 There is no targeting of the stock market by the Fed, we don’t press the buttons. But the Fed understands asset prices have a large role to play in people’s thinking.

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