Is more stimulus on the horizon?
JEREMY HOBSON: Well in just a few minutes Fed Chairman Ben Bernanke will start testifying at a hearing on Capitol Hill. And he’s sure to be asked about the weak housing market. But is there anything more the Fed can do about it?
Let’s bring in Richard DeKaser, economist with the Parthenon Group who is with us live from Boston, as he is every Wednesday. Good morning.
RICHARD DEKASER: Good morning.
HOBSON: Well Richard, bad housing market, bad job market — is there any chance do you think of further stimulus? Money printing? Bond buying, if you will, from the Fed?
DEKASER: I think there’s a chance, but I don’t think it’s a strong chance. You know, the Federal Reserve had its key policy committee meeting just three weeks ago. And at that meeting they were clearly divided. Some members felt as though they should be open to the possibility of doing more if conditions deteriorated. But an equal number seemed inclined to reverse course, actually start tightening policy because they think that the risk of inflation are already too great. Now, in the ensuing three weeks, we’ve had some bad economic numbers, but I don’t think they’ve been bad enough to completely move the Fed significantly in the direction of another round of easing.
HOBSON: Well, what about the other issue that is sure to come up with Chairman Bernanke in this hearing this morning — the debt ceiling debate. Seems now like there might be a deal that doesn’t have any budget cuts but does raise the debt ceiling. Do you think the Fed be OK with something like that?
DEKASER: I think the word “OK” is exactly the right word to use. I think they’d be just OK. Clearly what the Federal Reserve would prefer, and what I think most people who prefer, is some kind of a deal that really confronts and tackles our long term debt problems in a very serious and significant way, while at the same time not jeopardizing the economic recovery which is still on shaky legs. That’s what everyone wants, but short of that, I think at least getting a deal to take all the uncertainty out of the markets and calm nerves somewhat would be a good Plan B.
HOBSON: Richard DeKaser, economist with the Parthenon Group, thanks as always.
DEKASER: My pleasure.
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