Fed policies, lack of confidence hurts economy

The Federal Reserve is feeling tremendous pressure to do more to stimulate a lackluster economy and encourage job growth, but unfortunately, there is little it can do now. In fact, the Fed’s quantitative easing efforts carry higher costs than are generally appreciated, CME Group Chief Economist Blu Putnam said.

While the Fed’s moves in 2008-09 likely helped prevent a full-fledged depression, the current problem is a lack of confidence in the future among businesses and individuals, Putnam said in a recent video interview. That reflects a lack of long-term government tax or spending policies and the prospect of a “fiscal cliff” in 2013 that’s “highly likely” to cause a recession if Congress fails to act, he said.

“Faster growth is likely only with long-term policies in which the markets can have confidence,” Putnam said.

Citing these concerns, Putnam estimated the U.S. economy’s growth prospects in 2013 and 2014 at about 2 percentage points lower (1.5% versus 3.5%) compared to what they would be otherwise if there was a long-term fiscal policy plan and if monetary policy was not stuck in emergency mode.

Video Length: 2:28 minutes