Roach Says U.S. Fed Easing Not Adequate to Fix Consumer Finances

Yale University senior fellow Stephen Roach said the Federal Reserve’s easy monetary policy has done little to help indebted U.S. consumers.

“What has QE done to repair the balance sheets of bruised, battered American consumers?” Roach said, speaking on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene and Sara Eisen.

Roach, a former non-executive chairman for Morgan Stanley Asia, said first-quarter growth wasn’t enough to support Fed actions as consumer demand has grown by less than one percent annually for five years.

“We shouldn’t frame monetary policy based on one quarter, and I care about the consumer spending piece,” he said. “What’s the personal savings rate right now? It’s below 3 percent. What’s the debt-to-income ratio? It’s above 100 percent.”

The Federal Reserve is purchasing a total of $85 billion in mortgage-backed securities and Treasury debt monthly, a program known as quantitative easing or QE. The move seeks to reduce 7.7 percent unemployment and ensure the nation’s labor market improves “substantially,” according to the Federal Open Market Committee.

Speaking yesterday in Washington, Federal Reserve Vice Chairman Janet Yellen said she is “encouraged by recent signs that the economy is improving and healing from the trauma of the crisis.” She said reducing unemployment should “take center stage.”

Consumer Spending

U.S. gross domestic product rose at a 0.4 percent annual rate in the fourth quarter, up from a 0.1 percent prior estimate and following a 3.1 percent pace in the third quarter, revised Commerce Department figures showed last week. Consumer spending, which accounts for about 70 percent of the economy, rose 0.7 percent after a 0.4 percent advance the prior month that was bigger than previously estimated, according to data released by the department.

Roach said policy makers should focus on helping American buyers, rather than attempting to do something “new and different” at each meeting.

“What has not been done is to assist the biggest sector of the economy, the American consumer, in repairing their balance sheets,” Roach said.

To contact the reporter on this story: Jeanna Smialek in Washington at

To contact the editor responsible for this story: Zoe Schneeweiss at

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