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After meeting, is Federal Reserve ready to take action?

Flags fly over the Federal Reserve Building on December 16, 2008 in Washington, D.C.

Jeremy Hobson: The Federal Reserve wraps up a two day meeting today in Washington. And the big question -- yet again...will be: Is the Fed ready to launch some new economic stimulus, in line with its mandate to help the country reach full employment?

Julia Coronado is chief economist with the investment bank BNP Paribas and she joins us from her office here in New York. Good morning.

Julia Coronado: Good morning.

Hobson: So what do you think, will the Fed do something, will they step in to help the economy?

Coronado: I don’t think they are ready to do anything yet. For two reasons: first, I think they want to gather a little more information, see whether the labor market, in particular, will do better than expected like it did last year or whether it will remain weak, if it stays weak I don’t think they will hesitate to act. But the other thing is they want to evaluate their options. What exactly should they do? Should they buy mortgages, should they buy treasuries? And then maybe in September they’ll be ready to take action.

Hobson: But it’s not as if we’ve just had one month of bad job growth. There have been several months of weak job growth plus we had U.S. growth at just 1.5 percent and consumer spending is down. I mean, what are they waiting for exactly?

Coronado: Well, that’s a great question and I think, again, we’re in this difficult moment where growth is not good enough but it’s not a disaster. So the Fed’s trying to figure out whether they still have the power to push the economy to stronger growth or whether some of these structural issues are more than they can address. It’s a fiscal policy issue more than a monetary policy issue.

Hobson: Well, if the Fed does decide to wait until their next meeting in September, you know last I checked we’re going to be two months away from a big election and I assume the Fed isn’t going to want to insert itself into the politics going on at that point.

Coronado: You know, Chairman Bernanke was asked that very question when he testified before Congress and he said rather defiantly: "We will take the actions necessary for the economy regardless of the election cycle." And they have done that in the past. So, I think if the Fed’s judgment is that the economy is too weak and they need to take action they will do it even if we are just two months ahead an election. 

Hobson: Julia Coronado, chief economist with the investment bank BNP Paribas, thank you very much.

Coronado: It’s a pleasure.

About the author

Julia Coronado is chief economist at BNP Paribas.

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