By: Dr. Lynn Reaser
Q: Is there more the Federal Reserve can do to spur economic growth? A: No. Three primary forces are stifling economic growth: fears that a Greek default with trigger bank losses with ripple effects around the world; anxiety over how the U.S. will address its ongoing deficits; and the need for households to deleverage and for the excess of distressed housing to be absorbed. These problems are beyond the scope of U.S. monetary policy. With interest rates at rock-bottom lows, the Fed’s most powerful tool would involve another major round of asset purchases, funded with newly printed money. This, however, could stoke another future bubble or future inflation. At this juncture, we do not need more uncertainty and volatility sparked by policy swings.