August 1, 2012

More Federal Reserve Action Won't Create Long-Term Economic Growth


It's time for the Fed to forget about introducing more and more economic uncertainty, and focus instead on letting the market stabilize so that Americans can turn their full attention to pulling ourselves out of this mess

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This week, several key economic indicators will be released, but those hoping for good news on all fronts are likely to be disappointed. Tuesday's Case-Shiller index will shed some light on the housing recovery, while Friday's jobs numbers will provide a look at how recovery is shaping up across the nation. In addition to these regular reports, the Federal Reserve's Open Market Committee will meet on Tuesday and Wednesday, and after months of disappointing data on several fronts, the big question is, what—if anything—will they do?

A possibility coming out of the Fed meeting is lower interest ratesthrough another round of "Twist," which would have the Fed buying mid-to-long-term Treasuries while selling short-term Treasuries. Another round of quantitative easing is also possible, though it would add nearly $2 trillion to the Fed's balance sheet. These policies would attempt to stimulate economic growth or reduce the high unemployment, but there are economic factors out of the Fed's control that make it difficult for Fed policy to work.

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