After Friday's weaker than expected monthly jobs report, hopes are high for the Federal Reserve to take additional policy action at its two-day meeting, which culminates Thursday and is topped off with a press conference by Chairman Ben Bernanke.
Republican presidential candidate Mitt Romney's economic adviser Glenn Hubbard joined The Daily Ticker to preview the outcome of the meeting.
"It is likely the Fed will take some action," says Hubbard, who is also Dean of Columbia's Business School and the former chairman of President George W. Bush's Council of Economic Advisers. He points to Bernanke's Jackson Hole speech in late August where the chairman said:
"As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years."
Whether or not the Fed undergoes its third round of quantitative easing, Hubbard does not believe any action will have "a material effect" on the economy. The economic recovery has been stymied by low business confidence, policy uncertainty and the broken housing market (all things the Federal Reserve cannot fix), he says.
So then what, if anything, can Bernanke do? Hubbard says Bernanke can continue to call on the federal government to step up and take action. But really, he says, "We are asking too much of the Federal Reserve and of Chairman Bernanke."
The Fed's initial response to the Great Recession was "bold" and "innovative," says Hubbard, but as time went by the effects of additional easing became weaker and weaker.
Romney has said that he would not reappoint the Fed chairman after his term expires in 2014. But Hubbard disagrees, even making the case for another Bernanke term in a Romney administration.
Many have recently argued that the Fed may act this week for political reasons (i.e. keep President Obama in the White House).
"I think the Federal Reserve officials are acting in whatever they think is in the best interest of the economy," he says. "I disagree with their assumptions but that doesn't mean I question their values or their judgment."
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