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Has QE2's ship set sail?

Tuesday, July 17, 2012 - 01:59

July 17 - The effectiveness of the Fed's efforts to boost economic growth is being questioned as Federal Reserve Chairman Ben Bernanke testifies before Congress. Sasha Salama reports.

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Financial markets had hoped Federal Reserve Chairman Ben Bernanke would give a hint that the Fed was moving closer to round three of bond buying to support the economy. But in his testimony to Congress Tuesday, Bernanke didn't tip his hand about what might be the Fed's next move. He did, however, leave open the question of just how effective quantitative easing has been. FEDERAL RESERVE CHAIRMAN, BEN BERNANKE, (ENGLISH) SAYING "My views, and the view of our analysts at the Fed, is that it also contributed to economic growth. It is hard to judge because it depends on what you think would have happened in the absence of those actions." Some economists say while QE may have helped the economy a bit, its impact has been very small. Robert Brusca of FAO Economics. SOUNDBITE: ROBERT BRUSCA, CHIEF ECONOMIST, FAO ECONOMICS, (ENGLISH) SAYING "I think Bernanke is afraid of admitting that the Fed is impotent. I don't think he wants to go there". Bernanke certainly didn't hide the fact that quantitative easing has its detractors. SOUNDBITE: ROBERT BRUSCA, CHIEF ECONOMIST, FAO ECONOMICS, (ENGLISH) SAYING : "He said it was a controversial policy. But then, in the end, he said he thought it was worthwhile. My joke about this is if quantitative easing were a drug and controlled by the FDA, it probably wouldn't be legal." The issue is the potential negative side effects in this case for the financial markets. SOUNDBITE: ROBERT BRUSCA, CHIEF ECONOMIST, FAO ECONOMICS, (ENGLISH) SAYING : "You can get a higher dividend stock than you can get a return on a bond. But a stock isn't a bond and a stock isn't as safe. And the dividend isn't guaranteed. And people buying stocks for their dividend yields because it exceeds the rate of return on a bond I think is very dangerous." Brusca points out that Bernanke said the U.S. economic recovery is being held back by the impact of Europe's debt crisis and uncertainty about U.S. fiscal policy two problems that monetary policy just won't fix. Sasha Salama, Reuters

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Has QE2's ship set sail?

Tuesday, July 17, 2012 - 01:59