Federal Reserve policy makers are unlikely to take steps toward further monetary easing at a meeting next week and may wait until November, New York University Professor Nouriel Roubini said.
Members of the Federal Open Market Committee are divided over whether to renew large-scale asset purchases, a strategy known as quantitative easing, Roubini said in a Bloomberg Television interview today.
“The Fed is not going to move next week. They’re going to move maybe in November because the latest data have been slightly better than expected” he said. “Eventually they’re going to get to QE but it’s going to be probably too little and too late.”
Manufacturing in August expanded at a faster pace than forecast as factories added workers and cranked up production, a Sept. 1 report from the Institute for Supply Management showed. Private employers increased payrolls by 67,000 last month, exceeding economists’ estimates, according to a Labor Department report on Sept. 3.
The FOMC meets on Sept. 21. Goldman Sachs Group Inc. and Pacific Investment Management Co. project U.S. central bankers will start buying government debt as soon as this year to prevent what they see as a 25 percent chance the economy will slip back into a recession.
“I don’t think that monetary policy at this point is effective,” said Roubini, who forecast the recession more than a year before it began in December 2007. “The banks are not going to lend extra money.”
The 10-year Treasury yield was 2.71 percent at 2:06 p.m. in New York, up from 2.68 percent late yesterday. The Standard & Poor’s 500 Index rose 0.3 percent to 1,123.89.
Referring to the 1.6 percent U.S. annual growth rate in the second quarter, Roubini said the economy may be reaching a “stall speed” and put the odds of a renewed recession at 40 percent.
“All the tailwinds that supported growth in the first half are becoming headwinds,” Roubini said. “We know that the second half is going to be worse than the second quarter.”
Roubini expressed doubts about the effectiveness of Japan’s first intervention in the foreign-exchange market since 2004.
“The size of intervention matters” as well as coordination, Roubini said. “In this case, the Bank of Japan went alone.” He said that “usually uncoordinated intervention is less effective than coordination.”
Roubini said “the fundamental trends might lead to an appreciation of the yen further.”
The yen tumbled past 85 per dollar for the first time in almost two weeks, trading at 85.56 at 2:08 p.m. in New York.
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