Further Easing by Fed Would Be `Stupid,' Carnegie Mellon's Meltzer Says

The Federal Reserve is too focused on short-term results and may be considering the pursuit of flawed policies, said Allan Meltzer, a historian of the U.S. central bank.

“We don’t have a monetary problem, we have 1 trillion or more in excess reserves so it’s literally stupid to say we’re going to add another trillion to that,” Meltzer, a professor at Carnegie Mellon University in Pittsburgh, said today in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.”

“One of the major mistakes that the Fed makes all the time is too much concentration on the short-term,” said Meltzer, author of a history of the Fed. “Aiming at that is just a fool’s game.”

The FOMC started its one-day meeting around 8 a.m. today in Washington and is scheduled to release a policy statement at about 2:15 p.m. The meeting takes place a day after the National Bureau of Economic Research announced that the longest and deepest U.S. recession since the Great Depression ended in June 2009, lasting 18 months.

The Fed is considering further expanding its balance sheet from its current level of $2.3 trillion to invigorate a slowing recovery. The expanding balance sheet has left banks with over $1 trillion in excess reserves.

“You don’t have to be very smart or study economics to know you don’t need more excess reserves,” said Meltzer.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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