The Federal Reserve’s decision today to undertake a new round of quantitative easing to bolster U.S. economic growth was “terrific” said Alan Blinder, former vice chairman of the Fed.
“Unemployment is miles above where it should be,” Blinder, a Princeton University economist, said at the Bloomberg Markets 50 Summit in New York. “The Fed would be violating its responsibility under the law not to be trying to push the unemployment rate lower, even though nothing it can do can push it a full percentage point lower. It doesn’t have that kind of weaponry.”
The Fed today said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, embarking on a third round of large-scale asset purchases to reduce unemployment. The central bank also said it will probably maintain near-zero rates through at least mid-2015, compared with an earlier expectation of late 2014.
Speaking at the same panel today, Kevin Warsh, a former Fed governor and now a lecturer at the Stanford University Graduate School of Business in Stanford, California, said he wouldn’t have favored the central bank’s “exceptionally aggressive” decision and that officials risk “over-promising and under-delivering.”
“There’s preciously little the Federal Reserve can do,” Warsh said. “We’re just in a lousy recovery.”
John Taylor, a professor at Stanford University and an adviser to Republican Mitt Romney, added that monetary policy has become counterproductive by becoming “one of the elements of uncertainty” and has gone beyond its traditional mission.
Allan Meltzer, a professor at Carnegie Mellon University, also criticized the central bank’s decision to buy more bonds, comparing it to the “many, many errors” that the Fed has made in the past.
“This is beginning to accumulate to be one of the worst” errors in the institution’s history, Meltzer said. “It’s very bad in my opinion because the Fed does not have a monetary problem. The country does not have a monetary problem. The country has some real problems.” The economy is not going to be much affected by the Fed’s actions, he said.