The Federal Reserve’s latest round of quantitative easing (QE3) isn’t justified by economic conditions and leaves the Fed little room to maneuver if another crisis hits, says economist Lawrence Lindsey, a former governor of the central bank.
He fully supported QE1 and QE2, given the economy’s troubles at those times. But now it’s running at “trend” growth, Lindsey tells CNBC, so he sees no need for QE3.
GDP expanded 1.7 percent in the second quarter.
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“I have no problem doing extraordinary things in extraordinary times,” says Lindsey, who was a top economic adviser to President George W. Bush and now runs his own consulting firm.
But, “unless you have an extraordinary situation, doing something that’s really out of the ordinary is risking things,” he says.
“If this becomes the new ordinary, it’s hard to imagine the Fed’s maneuvering room” should economic conditions deteriorate.
Additional Fed easing also makes it easier for Washington to avoid dealing with the fiscal cliff, Lindsey says.
“The Fed, maybe because it can't do otherwise, has told Congress: 'We're going to buy your bonds no matter what,'” he says. “I think that's keeping the pressure off the president, off the Congress.”
Philadelphia Fed President Charles Plosser doesn’t think much of QE3 either. “We are unlikely to see much benefit to growth or employment from further asset purchases,” he said in a speech Tuesday.
Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.
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