Fed Looking to Unlock Liquidity, Economist Says

Although the Federal Reserve kept monetary policy unchanged Tuesday, it was looking to spur investment, said one economist.

“What was really interesting in the statement, if you want to find one thing, was the comment on investment because this is something the Fed is fixated on: Investments lower than they’d like, even though the economic outlook is looking a little brighter,” said Diane Swonk, chief economist at Mesirow Financial.

The Federal Reserves statement noted that the U.S. economy was expanding modestly despite a global slowdown and some improvement in the labor market.

But in the near-term, Swonk said, the Fed was concerned about cash-hoarding.

“They’re making cash absolutely repulsive to hold with no reward,” she said.

Swonk said the Fed signaled that inflation was below an optimal level looked to unlock that liquidity domestically.

There was also concern about economic pressures in Europe. “Disinflation and threat of recession are right in forefront of their mind,” she said.

The Federal Reserve statement read, in part:

“While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.”

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