The Fed May Be Buying More U.S. Debt to Boost Economic Recovery

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street and Main Street got an inside look
at the debate inside the Federal Reserve on what to do next to fix the
economy. Some really interesting stuff Tom and it looks like few
policymakers believe they need to buy more government bonds. This would be
a third round of the so-called quantitative easing or QE3, to support the
U.S. economy.

TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: Very interesting here Susie, we got this inside look from
the minutes of the central bank`s meeting back in January. Of course
that`s when policymakers continued to hold interest rates at record lows,
but also extended that pledge until at least late 2014. It`s also the
first time Susie that we saw detailed information on the discussion and the
voting. Here`s what we learned. A few members favor another round of
quantitative easing, but a number remain quote, open if the economy
deteriorates. Many officials noted better than expected data on the
economy; others pointed to less favorable data, so some mixed views there.
While president of the Richmond, Virginia Federal Reserve Jeffrey Lacker
expects to raise interest rates perhaps before 2014 to head off a spike in
inflation, others called inflation subdued.

GHARIB: Stocks sold off on word that the Fed will not pump more
money into the economy. The Dow lost 97 points. This is its biggest drop
for 2012. The NASDAQ down 16, the S&P fell seven points. Joining us now,
Robert Brusca. He`s the chief economist at Fact and Opinion Economics.
Hi, Bob.


GHARIB: So based on what you learned, do you have a better idea of
what the next step is going to be from the Fed on getting the economy to
grow again?

BRUSCA: Yeah, I think the Fed is pretty clear, at least in terms of
what the majority thinks. The Fed really is worried about the economy. It
still sees that risk of deflation out there, at least at the time of these
minutes was unconvinced that the economy was really accelerating to any
extent. And the Fed sees this long period in which it`s going to keep
interest rates very, very low ahead of us, as the most likely case, but of
course not the only case.

GHARIB: Well, Bob, since that January meeting, we`ve gotten a lot
more data on the economy, whether we`re talking about that really strong
jobs report, today`s home builders` report, which was a little more upbeat
and optimistic, some good news on manufacturing. What do you think is the
health of the economy? How would you describe it?

BRUSCA: Well, I`d describe it as mending and maybe mending a little
bit faster than the Fed thinks. But let`s remember, we`ve had false starts
before and we heard Chairman Bernanke speak to us since these numbers are
out and on the table. And it`s pretty clear to me that the chairman`s point
of view is that he wants the economic data to show him something. He isn`t
going to buy into a strong economy on the next strong job report. He`s
still very concerned the unemployment rate is high. He wants to get it
down lower and I think he`s going to take some risk with inflation going
on, at least for a while. He`s unconvinced the economic data are really
that strong.

GHARIB: There was a lot of talk today on Wall Street about a comment
from the Dallas Fed President Richard Fisher, I`m sure you heard it. He was
telling reporters that QE3 is a Wall Street fantasy. What`s your take on

BRUSCA: Well, Mr. Fisher doesn`t really mince words. He`s telling you
that as far as he`s concerned, there`s not going to be a QE3 and that`s my
forecast. At the end of the year, I thought the economy was going to do
better. I thought it was going to grow and I thought it would be strong
enough that you would not see a QE3. And all of this is very hard to hard
to puzzle out because you have the Fed`s minutes, but time changes. We
don`t really know what all those people on the Fed think now after having
seen the new data. And so we have to listen to them in public one by one
register new opinions and time stamp them.

GHARIB: So do you like this new Fed, all this new information that
they`re giving, you know, putting out for everyone? Does this help
investors? Does this help economists like you? Or is it making things
more confusing?

BRUSCA: Well, I`d rather know how the Fed thinks than what the Fed
thinks. The problem with this is that we know what the Fed thinks about
some various scenarios at a point in time, and in fact it`s kind of a …
We know that different people on the Fed think different
things. But even if you stick with the main thrust of what they`re saying,
sometime down the road when events begin to develop, we may find a
situation that seems to be very close to this situation they`ve laid out
now, but they do something differently because not everything is the same.
In short this is a conditional outlook and the Fed can`t possibly know
today everything that`s going to happen one, two or three years out. That`s
why this isn`t particularly useful.

GHARIB: All right. Well, stay tuned, we`re going to keep monitoring
this. Thanks so much, Bob.

BRUSCA: Thank you, Susie.

GHARIB: We`ve been speaking with Robert Brusca. He`s the chief
economist at Fact and Opinion Economics.

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