Chairman Campbell: Fed's Monetary Policy Depressing Current Employment and GDP Growth
March 6, 2013
March 5, 2013 - At the Financial Services Subcommittee on Monetary Policy and Trade's hearing on the Federal Reserve's "unconventional" monetary policy, Chairman Campbell finishes his second round of questions by discussing the harmful impact of the Fed's current monetary policy on retirees, savers, young people looking for jobs, and the current economic health of the country.
Transcript of Chairman Campbell's Questions:
"This hearing has been very interesting, very productive and very helpful. One of the things that has come to me from this hearing that I didn't necessarily have coming in is that the tail risks of the current monetary policy are obvious, the Fed acknowledges them, etc. But, what I heard today was that, aside from risks, there are current negatives in the monetary policy that are depressing current employment and current GDP growth. I'd like to touch on a few of these. One we talked about was the loans being priced below where they should be...if milk is free, it doesn't help if you can't get it. Now, Dr. Gagnon just suggested that it's about the spread and not about the price of loans. How do you, who believe that's a restrictive factor, respond to Dr. Gagnon?"
"We talked about cash on balance sheets not deployed and it's not just on corporate balance sheets. Again, I see that, anecdotally, all the time: People just sitting on cash because interest rates are too low and returns are too low now, but they think that they will go up in the future. So, everyone just sits until the Fed takes action. Whether then trying to read the market, they are trying to read what the Fed is going to do - which is very distorting in my view. We talked about banks borrowing at quarter percent and selling to Treasury at a percent. Older people and savers are losing in this environment. When I asked Chairman Bernanke last week about how the benefits of this policy is going to big banks and governments, he pushed back hard and said there's all kinds of employments being created. What are the cutbacks of savers, what are they doing differently? What are seniors who are largely or partially dependent on fixed income doing to cut themselves back on that? But, Dr. Gagnon, you acknowledged that but you felt younger people were getting some benefit. I saw a great deal of angst from the other end of the table when you said that. So, either Mr. Malpass or Dr. Meltzer, please respond to that?"
Hearing Memorandum: http://financialservices.house.gov/uploadedfiles/030513_mpt_hrg_memo.pdf