Rogoff Sees Fed Asset Purchases in Effort to Secure U.S. Economic Recovery
Federal Reserve policy makers are likely to embark on a third round of large-scale asset purchases, moving “more decisively” to secure the U.S. recovery, said Harvard University economist Kenneth Rogoff.
“They certainly should do something right away,” said Rogoff, a former International Monetary Fund chief economist who attended graduate school with Fed Chairman Ben S. Bernanke. It’s “hard to know” if Bernanke would immediately be able to gain the support of Federal Open Market Committee members, Rogoff said in an interview today on Bloomberg Television.
The FOMC meets today in Washington a day after the worst day for U.S. stocks since December 2008. Bernanke last month outlined policy options including additional asset purchases or strengthening the commitment to low interest rates after the first two rounds of so-called quantitative easing failed to keep the unemployment rate below 9 percent.
“Out-of-the-box policies are called for, especially much more aggressive monetary policy, however unpopular that may be,” said Rogoff, 58, a former Fed economist who like Bernanke earned a Ph.D. from the Massachusetts Institute of Technology. The Fed is “going to move more decisively,” Rogoff said.
The Fed is scheduled to release a statement at about 2:15 p.m. New York time after its meeting. Bernanke and his colleagues may prolong a pledge to maintain record monetary stimulus, said economists at JPMorgan Chase & Co. (JPM), BNP Paribas and Goldman Sachs Group Inc. (GS) The Fed could do so by making a commitment to hold its $2.87 trillion balance sheet steady for an “extended period.” The central bank has kept its benchmark rate near zero since 2008.
‘Moderate Inflation’
Rogoff recommended the Fed say in “very clear statements” that it’s trying to create “moderate inflation.” “In the classic classroom QE, it’s open-ended,” Rogoff said. “You say, ‘I’m trying to create inflation of, let’s say 2 or 3 percent, and I’m going to do whatever it takes.’”
The Fed should also avoid repeating that officials are trying to boost stocks, Rogoff said, calling that a “bad idea.”
The Standard & Poor’s 500 Index tumbled 6.7 percent yesterday to 1,119.46 in New York trading, its biggest decline since December 2008. The benchmark Stoxx Europe 600 Index dropped 4.1 percent yesterday in London to 228.98, its biggest retreat since March 2009.
The Fed should have extended its asset-purchase program, “as controversial as it was,” instead of ending it, Rogoff said. The central bank completed the second round of bond buying in June, purchasing $600 billion of Treasuries.
“They need to move much more decisively,” Rogoff said.
Carmen Reinhart and Rogoff wrote a 2009 book on the history of financial crises, “This Time Is Different,” a work Bernanke said in April was “very informative.”
To contact the reporters on this story: Susan Li in Hong Kong at sli31@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
Harvard University Economics Professor Kenneth Rogoff
Andrew Harrer/Bloomberg
Harvard University economics professor Kenneth Rogoff.
Harvard University economics professor Kenneth Rogoff. Photographer: Andrew Harrer/Bloomberg
Aug. 9 (Bloomberg) -- Harvard University's Kenneth Rogoff talks about Standard & Poor's decision to downgrade U.S. debt and its implications for the nation's economy and central bank monetary policy. Rogoff also discusses the outlook for the global financial markets, China's economy and European Central Bank monetary policy. He speaks from Boston with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Aug. 9 (Bloomberg) -- Republican presidential candidate Ron Paul of Texas and Orin Kramer, general partner of Boston Provident Partners LP and the former chairman of New Jersey’s pension fund, speak about U.S. debt, fiscal policy, and financial markets. Paul and Kramer spoke yesterday with Lisa Murphy and Adam Johnson on Bloomberg Television's "Downgrade: a Special Report." Bethany McLean, a contributing editor at Bloomberg Television, and Bloomberg's Michael McKee also spoke. (Excerpt. Source: Bloomberg)
Aug. 9 (Bloomberg) -- Robert Carnell, chief international economist at ING Bank NV, speaks about the outlook for a third round of so-called quantitative easing by the U.S. Federal Reserve. Carnell, speaking with Maryam Nemazee and Manus Cranny on Bloomberg Television's "The Pulse," also talks about U.S. unemployment and the European debt crisis. (Source: Bloomberg)
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