Tags: Roubini | Fed | bullets | nouriel | reserve

Roubini: Fed Is ‘Running Out of Bullets’

By    |   Thursday, 02 Sep 2010 07:55 AM

Federal Reserve Chairman Ben Bernanke has said that the central bank will expand its quantitative easing if necessary to prevent another recession.

But star economist Nouriel Roubini says the Fed is shooting with an empty gun.

“We cannot prevent slow economic growth for a number of years,” Roubini told Bloomberg. “We are running out of policy bullets.”

Bernanke has raised the possibility that the central bank could buy more fixed-income securities – it recently announced that it will soon purchases Treasuries – and that the Fed could cut the interest rate on banks’ excess reserves deposited at the central bank.

Banks are “sitting on” $1 trillion of excess reserves and slashing the rates on them to zero from 0.25 percent won’t push banks to lend money, Roubini says.

“The point is monetary policy is becoming ineffective,” Roubini said.

Economic growth was revised down to 1.6 percent for the second quarter, and he says growth will “certainly” register less than 1 percent for the third quarter.

Economists took some solace in the news that consumer spending rose 0.4 percent in July. But they aren’t doing cartwheels, especially as the July gain followed three months of essentially flat readings.

"The consumer hasn't taken the economy back into recession," Stuart Hoffman, chief economist at PNC Financial Services Group, told The Associated Press. "The consumer is still moving forward, but they are doing it at a very modest pace."

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Federal Reserve Chairman Ben Bernanke has said that the central bank will expand its quantitative easing if necessary to prevent another recession. But star economist Nouriel Roubini says the Fed is shooting with an empty gun. We cannot prevent slow economic growth for a...
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2010-55-02
Thursday, 02 Sep 2010 07:55 AM
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