Tags: CNBC | Fed | quantitative | easing

CNBC Survey: Markets Expect Fed Stimulus, But Tools Won’t Boost Hiring

Wednesday, 12 Sep 2012 10:31 AM

Most economists think the Federal Reserve will announce plans to stimulate the economy via monetary easing measures, although such policies will fail in their aim to spur job demand, according to a new CNBC survey.

A string of weak jobs reports and sluggish growth figures will likely nudge the Fed to announce at a monetary policy meeting this week plans to roll out a third round of quantitative easing (QE).

Under QE, the Fed buys bonds like mortgage-backed securities or Treasury holdings from banks, pumping the financial system full of liquidity in a way that pushes down interest rates across the economy to encourage investing an hiring.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

The Fed has injected $2.3 trillion in two prior rounds of QE since the 2008 financial crisis, though recovery remains tepid.

A CNBC survey of 58 money managers, strategists and economists finds that 90 percent believe the Fed will announce QE3 in the next 12 months, 77 percent of which see action coming out of the Fed’s meeting this week.

However, only 36 percent of the respondents feel that further easing will help lower unemployment rates, with 59 percent saying it won’t.

“The Fed signaled a likely September policy move in the prior minutes, and the last employment report should seal the deal around QE rather than a communication change,” wrote Mike Englund of Action Economics in response to the survey, CNBC added.

The economy added 96,000 jobs in August, well below market forecasts for 125,000 jobs or even higher.

“Nevertheless, there is likely little economic benefit from further QE action despite the defense made by Chairman [Ben] Bernanke at Jackson Hole. The Fed is simply trying to look like part of the solution rather than part of the problem.”

The minutes from the Fed’s last monetary policy meeting showed that more voting members favored stimulating the economy should it fail to gain steam, while Bernanke hinted at the Fed’s annual Jackson Hole symposium recently that further intervention may be necessary.

Other experts agree that liquidity injections and rate cuts won’t spur recovery and create jobs if consumers and businesses hold off on demand.

“What the Fed is trying to do is send a signal rates are low and are going to stay low for a long period of time, so it’s a good time to come off the sidelines, consumers, and start buying that house or car you’ve been putting off,” said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy, according to the Boston Herald.

“Unfortunately, the Fed ends up chasing its tail a little bit on this in that it’s signaling it doesn’t have the confidence that the economy is going to come back in that period of time.”

Many businesses are putting off hiring to await the end of the year, when tax breaks are set to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the economy sliding back into recession next year if left unchecked by Congress.

“The U.S. and global economy are entering the most dangerous period of this economic recovery,” wrote Ethan Harris, chief global economist at Bank of America Merrill Lynch Global Research, according to CNBC.

“If the fiscal cliff is badly handled at the same time that the European crisis enters another acute phase, a recession is likely.”

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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