Roubini Says Fed Is `Running Out of Policy Bullets'
New York University Professor Nouriel Roubini
Andrew Harrer/Bloomberg
Nouriel Roubini said, “The point is monetary policy is becoming ineffective.”
Nouriel Roubini said, “The point is monetary policy is becoming ineffective.” Photographer: Andrew Harrer/Bloomberg
Aug. 27 (Bloomberg) -- New York University professor Nouriel Roubini discusses expectations for U.S. economic growth in the third quarter. Roubini, talking with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance," also discusses the effectiveness of Federal Reserve monetary policy. (This report is an excerpt. Source: Bloomberg)
Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said the Federal Reserve is running out of effective ways to stimulate the economy.
“We cannot prevent slow economic growth for a number of years,” Roubini said an interview on Bloomberg Radio. “We are running out of policy bullets.”
Fed Chairman Ben S. Bernanke said today that the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery. The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures,” Bernanke said in a speech to central bankers around the world at a symposium in Jackson Hole.
The Fed this month decided to keep its bond holdings at $2.05 trillion by reinvesting proceeds from maturing agency and mortgage-backed securities in Treasuries to support a slowing economic recovery. The FOMC held the main interest rate unchanged at zero to 0.25 percent, where it’s been since December 2008.
Banks are “sitting on” $1 trillion of excess reserves and cutting the interest rate on excess reserves to zero from 25 basis points isn’t going to make them lend money, Roubini said. Additional quantitative easing through purchases of securities also won’t jumpstart economic growth, he said.
“The point is monetary policy is becoming ineffective,” Roubini said.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously calculated, as companies reined in inventories and the trade deficit widened, figures from the Commerce Department in Washington showed today.
Roubini predicted growth in the third quarter of this year will “certainly” be below one percent. Earlier this week, he said there was a 40 percent chance that the U.S. economy could slip back into a recession.
Economists have downgraded their forecasts for the second half of this year. Gross domestic product will expand at an average 2.55 percent annual rate in the last six months of 2010, according to the median of 67 estimates in a Bloomberg News survey taken July 31 to Aug. 9, down from the 2.8 percent pace projected last month.
To contact the reporters on this story: Caroline Salas in New Yorkt ; csalas1@bloomberg.net; Thomas R. Keene in New York tkeene@bloomberg.net
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