Tags: Brusca | Fed | policy | impotent

Economist Brusca: Fed Policy Is Nearly Impotent

By    |   Friday, 22 June 2012 12:17 PM

The Federal Reserve is basically out of weapons to combat economic weakness, says independent economist Bob Brusca.

The central bank’s decision this week to continue Operation Twist and to keep buying mortgage agency bonds, means little, he tells Yahoo.

"They're doing something, but they’re not doing much. The Fed doesn't have many arrows left in the quiver."

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

The central bank’s move to keep interest rates near record lows isn’t doing much for the economy, Brusca says. GDP growth slumped to 1.9 percent in the first quarter from 3 percent in the fourth quarter.

“It doesn't seem to me that low interest rates are what is broken,” he says. “What's broken is the ability to access those rates. The problem is that credit is being rationed by banks."

Those that don’t need credit – those with high credit ratings – can get it. And those who need it – those with low credit ratings – can’t. “We need to get the credit to the people who will use it," Brusca says.

Sustained low rates create a vicious cycle for the economy because they lower growth expectations, he says. That discourages economic activity, making slow growth a self-fulfilling prophecy.

Other experts agree with Brusca about the Fed’s limits.

"Any monetary action in the current economy is pretty limited because of the uncertainty, lack of confidence, credit constraints" and other obstacles, Paul Ashworth, chief U.S. economist at Capital Economics, tells The Wall Street Journal.

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

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