July 11 - Despite all the market speculation- it’s not clear a possible third round of bond purchases by the Fed, referred to as QE3, would be the cure for the ailing U.S. economy. Bobbi Rebell reports.
The Fed continued to play the waiting game at its June meeting. The minutes show that while they remain open to taking more action to boost the economy- things just weren't bad enough. But even if the economy gets worse- a third round of bond purchases- referred to as quantitative easing or QE3 could be past its time. First and foremost: some argue it won't do anything more than the first two rounds of quantitative easing. Mizuho Securities' Steve Ricchiuto: SOUNDBITE: STEVEN RICCHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES (ENGLISH) SAYING: "The Fed's afraid of expanding the size of its balance sheet any further. They are looking at the banks and realizing there are very few signs of stress within the banking industry and since most of those funds would wind up just accumulating in the banking industry they wouldn't be being passed on through to the rest of the economy and therefore it really wouldn't do much of a macro economic impact. The original rounds of QE1 and QE2 were designed to increase the confidence level in the banking industry and they've accomplished that." Second- the economy might get better on its own- given more time. UBS's Sam Coffin: SOUNDBITE: SAM COFFIN, ECONOMIST, UBS (ENGLISH) SAYING: "We think the current risks to the growth will fade and in the meantime there are number of positives, looking at housing prices moving up, auto prices moving up, the housing market generally improving and on and on that should support growth later on. We'll have pretty soft growth in the current, second quarter, but acceleration later in the year." And third- the Fed's done enough in terms of monetary policy- now it's time to focus on other options. SOUNDBITE: STEVEN RICCHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES (ENGLISH) SAYING: "There's not much monetary policy can do. We really need to get into the appropriate fiscal policy solutions including broad tax restructuring, entitlement restructuring, deficit reduction, long term combined with some near term stimulus that is properly designed stimulus. It's a whole big basket of things and it's really outside the purview of monetary policy." But with Washington unlikely to make any moves ahead of the November elections, many are still hoping the Fed will take action. Bobbi Rebell, Reuters.