Hostility Toward QE Is Misguided, Ignorant: Gertler

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Nov. 13 (Bloomberg) -- NYU's Mark Gertler discusses the outlook for Janet Yellen's confirmation hearing and Federal Reserve monetary policy with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

The new york fed and co-author of numerous articles is here.

Welcome.

What do investors want to hear from janet yellen tomorrow?

I like to think they would like to see she is under control of the situation and can communicate the fed posses intentions.

Those intentions would be?

They still have to provide stimulus to make sure the recovery moves along.

Will the fed posses dual mandate still be the objective?

Absolutely.

Everything she said is consistent with maintaining the objective.

Right now, we have a weak economic situation and employment situation, and associated with that is weak inflation.

Fed posses dual mandate still be the objective?

Absolutely.

Everything she said is consistent with maintaining the objective.

Right now, we have a weak economic situation and employment situation, and associated with that is weak inflation.

So, the efforts to stimulate the economy will not interfere with price stability.

It will not create inflation.

What type of push back might she received because of her support for quantitative easing and what about the her support for quantitative easing and what about the fact even though they have pressed on with these monthly asset purchases to keep interest rates low, the unemployment rate is still over seven percent?

Let me answer the second question first.

She is citing a very contractionary fiscal policy.

Congress is not helping.

Unemployment rate isit has spending at sequester levels, a drag on the economy.

He has said more than once they need a partner.

Absolutely.

They create uncertainty.

The fed has to offset what congress is doing.

If the fed had not been providing the stimulus it had been, the economy would be much weaker.

Secondly, there is a misguided hostility to quantitative easing.

Since the onset, there has been a great fear it would be inflationary.

Look at the data.

It is still below two percent, the lowest.

Some of the hostility is just plain a nice.

-- plain ignorance.

Will the meeting be the first thing on janet yellen posses plate when she becomes fed chairman?

The fed has been very clear that what it does with tapering will depend upon economic conditions.

It cannot know with certainty how the economy will behave.

If the economy is stronger than expected, there is a chance we may see tapering.

If it is as expected or weaker, tapering will be pushed off, probably sometime at least until the middle of next year.

Has this been exacerbated because of the drag of data because of the government shutdown?

It did not help.

Broader thing is just the contractionary fiscal policy has hurt.

What has been ben bernanke posses legacy?

There are seven role aspects to it.

First and foremost, he is the person who saved the global economy from the financial market meltdown.

He had the fed intervene very aggressively in the wake of the lehman collapse.

The fed reacted very strongly and turned the tide and stabilize financial markets.

What about his critics, who say this may be an artificial economy and look at the fed posses balance sheet?

How do you wind it down without causing volatility to the markets?

We are a lot better off having financial markets stable than unstable.

Interest rates are down.

The housing markets are picking up.

We are way better off with these policies than if we had done the reverse.

What do you think -- we have been hearing a lot from people on the air here.

Bloomberg has been putting off papers talking about debt forgiveness, that maybe if the fed did for dave some of the debt we have, that might bring more stability to the system.

Is that something even on the table for discussion?

I do not know that policy makes any sense to me whatsoever.

I do not see -- the fed is not in a position to reneged on debt so i am not sure what they mean.

The u.s. government will not renege on its debt.

That would be catastrophic.

There might be a difference between reneged and debt forgiveness.

Are we just talking semantics?

I am not quite sure what we are talking about.

Forgiveness or mortgage debt?

That would be a forgiveness thing.

See i want to continue this but we cannot.

If you have a moment, we will talk about this when we come back from the commercial break.

We will get into that.

We will be back.

We continue in just a moment.

? class welcome back.

We were talking about janet yellen -- janet yellen.

Questec crisis on the fact we might not honor our debt.

I do not see how we could get away doing anything else other than honoring it.

The fed is holding some of government debt and bankers spurs to finance it.

The only thing the fed can do is either buy more of it or sell some of it.

Presumably the reason it is not selling it right now is it wants to keep interest rates down.

Classroom -- last week, chairman ben nagy spoke at a conference.

He said the fed has greater power to combat crisis.

Has the bernanke fed established a template to do that, to combat future crises?

Class absolutely.

Before the bernanke said, there was one tool of monetary policy, which they could set a target for.

The overnight rate on bank reserves, they could set the target for on -- now there -- basically what the fed during this crisis did is when there was a destruction of credit flows in the market, they intervened in some way to get credit flowing again.

You saw credit spreads went up in particular markets.

The said developed policies to get credit flowing in these markets and get credit spreads back down.

The most recent types of policies have been qe, where, for example, mortgage rates have been going up, or long-term bonds have been going up, and the fed has been able to intervene and push these spreads.

There is a template and then there is circumstances.

If there are circumstances in the future, does that mean you have to deal with these in real- time?

The tempe gets thrown out the window.

Quest that is true.

There is a danger we always know how to fight the last war.

What happened this time is there was no playbook when financial markets unraveled so they quickly developed a set of tools.

This is one of the outstanding accomplishments of the bernanke fed.

They could do it in real time, developed these tools to intervene in credit markets.

God forbid if we have another type of crisis of this type, we will have the tools ready to roll out.

A lot of the policies have been put on a shelf but they are ready to roll out in the event of the next crisis.

We hope we will not have one because we put in sound regulation.

Will janet -- janet yellen posses -- eventually, but in the near- term, the first year or so a couple of years, you will see a smooth transition from bernanke.

The professor of economics at

This text has been automatically generated. It may not be 100% accurate.

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