Photo: Bloomberg TV
Markets breathed a sigh of relief yesterday after the Wall Street Journal’s Jon Hilsenrath reported that the Fed was “moving closer” to more action.Stephen Roach, Yale professor and former chairman of Morgan Stanley Asia, told Bloomberg TV that he does expect the Fed to act next week, so as not to disappoint the markets.
But he also took the opportunity to take a dig at both Hilsenrath and the Fed, which Bloomberg reporter Betty Liu called mere speculation:
“They [The Fed] have gone about their usual pre-FOMC leak frenzy where they talk to this reporter and that reporter. Jon Hilsenrath is actually the chairman of the Fed. When he writes something in the Wall Street Journal, Bernanke has no choice but to deliver on what he wrote.”
“…The point is, when they plant a story in the Wall Street Journal, and this story has been planted. Jon Hilsenrath is the weed that grows…the guy has a perfect track record…”
Roach went on to say that the Fed will do some type of QE3 since the economy is weaker than when the Fed made the decision to extend Operation Twist.
Roach said one can speculate about the kind of securities this would involve but he said he expects another round of quantitative easing as opposed to an operation twist which aims to lower long-term interest rates by selling short-term bonds and buying long-term bonds. But Roach is certain this won’t work:
“The economy is in the doldrums. The biggest piece of the economy is the American consumer. 70% is in a balance sheet recession…The Fed knows this, but they are dangling this raw meat in front of the markets and the markets are salivating as they always do in that frenetic way that they try to believe in the Fed. But it has not worked and it will not work.”
Watch the entire interview at Bloomberg TV: