As the euro zone economy teeters and the dollar gains on other currencies, the Federal Reserve won’t likely provide a third round of quantitative easing, former Federal Reserve Governor Randy Kroszner said Tuesday.
“The European Central Bank just has to ask for it, and it’ll come forward,” he said on CNBC’s “The Kudlow Report.” “And my guess is they’ll be doing a lot of asking.”
Short of a dramatic shift in the value of the U.S. dollar, Kroszner doesn’t believe Fed policy will react to subtle shifts.
“Certainly when the dollar gets stronger, that means that it’s cheaper to buy imports since that — at least in the short run — is less inflationary pressure,” he said. “But I don’t think that’s going to be enough to change Fed policy, unless there’s a disorderly change either in the value going up very strongly or going down very strongly.”
Kroszner, a professor of economics at the Booth School of Business of the University of Chicago, served as a governor of the Federal Reserve Bank from March 2006 to January 2009. He also served on the president’s Council of Economic Advisers from 2001 to 2003.
But what if the dollar rises another 5 percent to 7 percent?
“I don’t think that’s going to be enough to do it,” Kroszner said. “I mean, if it goes like that in a day, then it’s going to be problematic.”
Within the time span of a few months, the Federal Reserve won’t likely change its monetary policy based solely on the dollar’s value.
“But certainly they’ll be looking at the consequences for the rest of the economy if we’re still getting some really weak numbers,” he said, adding that Friday’s jobs report will be important.
Kroszner also said he did not believe long-term rates would change much, if at all.
“Imm not sure they feel there’s a lot more bang for buck left in doing that twisting of buying long-term securities and getting rid of the short because you look at the long rate, the 10-year rate, it’s down so low already,” he said.
"The Kudlow Report" airs weeknights at 7 p.m. ET.
Questions? Comments, send your emails to: firstname.lastname@example.org