What’s next for the Federal Reserve?

David Gura Mar 16, 2011
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What’s next for the Federal Reserve?

David Gura Mar 16, 2011
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Steve Chiotakis: A snapshot on wholesale inflation is out today. The Producer Price Index, showed an increase in food and energy costs — i.e. gas. But aside from those things, inflation is still relatively tame. The Federal Reserve concurred. And kept interest rates near zero.

Marketplace’s David Gura has more.


David Gura: Like many economists, Hamilton College professor Ann Owen scrutinizes statements from the Fed.

Ann Owen: The tone of this is much more optimistic than it was in January.

The Fed said “the economic recovery is on a firmer footing.” Unemployment is down, spending is up, and so is business investment. The central bank has kept interest rates low, and it’ll continue to buy hundreds of millions of dollars of Treasury bonds.

But the housing market hasn’t recovered, and commodity prices are volatile.

Owen: If one of the things that, say, is driving oil prices is the instability in the Middle East, well the Fed can’t do anything about that.

And Martin Neil Baily of the Brookings Institution says the Fed isn’t in a position to react to the disaster in Japan.

Martin Neil Baily: They have pretty much pulled out all the stops already.

But he says it’s important to remember what’s happened after other disasters, like Hurricane Katrina and 9/11.

Baily: They typically don’t have much effect on GDP. It’s actually quite hard to see any impact of those events.

He predicts the Japanese economy may suffer for a quarter or two, but when the country starts to rebuild, there’ll be a surge in public spending and investment. And that could benefit the U.S. economy.

In Washington, I’m David Gura for Marketplace.

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