Experts: Fed Only Mimicking Bank of Japan's Tactics

Wednesday, 18 Aug 2010 08:06 AM

By Dan Weil

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For nearly two years, there have been voices arguing that the United States economy is headed for a bout of deflation like that suffered by Japan.

Now the Federal Reserve is matching the Bank of Japan’s impotent monetary policy, some experts tell Bloomberg.

The Fed recently decided to purchase Treasuries and to keep a floor on its fixed-income portfolio at the current level of $2.05 trillion.

Those moves smack of the BOJ’s own futile effort at quantitative easing, expanding reserves from 2001-06.

“I don’t think anyone in the market is fooled” by the distinction, Stephen Stanley, a former Fed researcher who is now chief economist at Pierpont Securities, told Bloomberg.

“That is a problem, both substantively and also from a perception standpoint.”

Not everyone agrees.

“The way it is not like the Japanese policy is the Fed was aggressive, it’s still early in the process, and the U.S. economy is still in the position of having reasonable (economic) growth,” former Fed researcher Greg Hess, told Bloomberg.

“We have learned many of the lessons that Japan has learned the hard way,” said Hess, now an economics professor at Claremont McKenna College in California.

Yale economist Robert Shiller says Fed action alone won’t be enough to keep the recovery afloat.

"Beyond the Fed, I'd like to see the government take a renewed stimulus package focused on creating jobs and on activities that involve a lot of people," he told MarketWatch.

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