According to Pacific Investment Management Co.’s Richard Clarida, Federal Reserve policy is incapable of eliminating the biggest obstacle of U.S. economic recovery.
“The main challenges facing the U.S. are not monetary, he said. “We have the headwinds from the fiscal cliff, from the slowdown in China, from the turmoil in Europe. None of those are monetary-policy issues.”
The U.S.’s GDP fell to 1.5% in the second quarter according to a recent report by the Commerce Department. Unless Congress takes action, the nation is likely to grapple with a ‘fiscal cliff’ of heightened taxes as well as spending reductions on defense and government programs.
Clarida said: “At the margin, I think the Fed believes where it can make a difference it will. But it recognizes that this is not ultimately going to be a monetary-policy solution for these challenges.”