A third round of bond buying by the Federal Reserve is “in the cards” and the best tool policy makers have for bolstering economic growth, said Lewis Alexander, U.S. chief economist at Nomura Holdings Inc.
“The fundamental challenge they face is they don’t have great tools at this point to support growth,” Alexander said today during a panel discussion at the Bloomberg Sovereign Debt Crisis Conference hosted by Bloomberg Link in New York. “Quantitative easing in this environment is the most effective tool they have. Our expectation is they will get to this at some point in the future.”
Fed officials began a two-day meeting in Washington today after voicing differences in recent speeches over whether additional accommodation is needed to spur growth. Any new asset purchases would follow two rounds of buying totaling $2.3 trillion that lasted from December 2008 until June 2011.
The issue facing the Fed is how to inject more stimulus into the economy, while sending “a strong signal” about price stability, Alexander said. “They’re struggling with that now” and “have got to worry about how they send that signal to make sure markets are on board.”
Also speaking on the panel was Peter Orszag, former director of the Congressional Budget Office and now vice chairman of global banking at Citigroup Inc. He said the U.S. needs mechanisms to combat political “inertia.”