Wrightson’s Crandall Says Fed Purchases May Set Bad Precedent

Federal Reserve asset purchases won’t do much to help the economy now and may set a bad precedent for later actions, Wrightson ICAP LLC chief economist Lou Crandall said today.

“This is really a marginal effort in terms of its contribution right now,” Crandall said of the Fed’s strategy, in a radio interview on “Bloomberg Surveillance” with Tom Keene. “They’re embracing a principle that I think has the potential to be abused in the future.”

Crandall is No. 1 among economic forecasters for the two-year period ended on Sept. 30, according to data compiled by Bloomberg. He ranks second for his projections of movements in the consumer price index and fourth in predicting sales of existing homes.

The Fed last month announced plans to buy $600 billion in assets through June, in an effort to boost the economy. Crandall said this campaign may not be as effective as a 2009 buying program that had “an immediate and obvious payoff” in stemming the financial crisis.

“It’s not clear right now that marginal long-term rates are going to make a significant difference in the recovery,” Crandall said. He said Fed Chairman Ben S. Bernanke may use a Dec. 5 appearance on CBS Television Network’s “60 Minutes” news show to try to counter some of the arguments against the asset-buying strategy.

“If they can tamp down some of the opposition, they’re going to do more,” Crandall said.

Crandall said he’s not worried that accommodative monetary policy will lead to inflation next year. He said “unused resources in the economy trump” any price pressures in terms of the short-run outlook.

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