What Fed can do to avoid a double dip

Marketplace Staff Aug 27, 2010

What Fed can do to avoid a double dip

Marketplace Staff Aug 27, 2010


STEVE CHIOTAKIS: The government revised downward this morning the nation’s annual rate of growth. The Gross Domestic Product had been reported to have risen by 2.4 percent in the second quarter. But today’s revision knocks that back to 1.6 percent. News of the GDP falling back is no doubt the talk of a conference going on in Jackson Hole, Wyo., today. That’s where the Federal Reserve Chairman Ben Bernanke told an audience of central bankers and economists from all over the world that the Fed is ready to step into action mode if it sees the economy slip much further.

Scott Minerd is chief investment officer at financial services firm Guggenheim Partners. He’s live with us from Santa Monica, Calif., to talk about it. Good morning, sir.

SCOTT MINERD: Good morning, Steve.

CHIOTAKIS: And your initial reaction to Mr. Bernanke’s speech today?

MINERD: Well, there’s nothing new here. The proposed policies that he outlines in the speech have already been openly discussed.

CHIOTAKIS: Policies such as?

MINERD: Well, for instance, a continuation of purchasing longer-term bonds such as Treasury securities to keep long-term interest rates down, changing the language that appears in the monthly statements issued by the Fed, and the idea of changing the rate of interests held by the Fed.

CHIOTAKIS: And what does the Fed need to do in order to avoid another recession, a double dip?

MINERD: Well, at this point the key is to keep long-term interest rates low. With rates down here, people who have good credit are having the opportunity to refinance their balance sheets and reliquify themselves and reduce the rate of interest they’re paying on mortgages and other things. And that’s freeing up disposable income, which is important for the consumer so that the consumer can take the baton and run with it to get economic growth going.

CHIOTAKIS: You’re talking about spending money, right? Taking this liquified money, as you say, and spending money.

MINERD: That’s right and the Fed’s looking for signs of life from the consumer. It wants to see the consumer spend more money.

CHIOTAKIS: It has been written that Bernanke is a student of the Great Depression, right? You see that all over the place. By the decisions he’s making, does it show how much a student he is or what kind of a student he is?

MINERD: Well, I think he’s a fairly good student. The mistake of the Depression — or what critics often say, policies in the 30s — was the Fed kept interest rates too high. Bernanke has been very aware of that from his study of history and has been quick to push interest rate and is willing to push interest rates lower if necessary to get the economy going.

CHIOTAKIS: Scott Minerd from Guggenheim Partners in Santa Monica, thanks for the them.

MINERD: Thank you, Steve.

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