The U.S. economy and financial markets at “a tipping point” was the headline generated by this Bloomberg interview with Pimco’s Bill Gross yesterday, but the comments about Federal Reserve policy in a rapidly changing environment were important as well. That discussion starts at about the six minute mark.
Gross sees the next round of quantitative easing taking the form of extended period language for zero short-term interest rates and the setting of caps for long-term rates.
A related story by Neil Irwin in the Washington Post neatly summarized the situation:
With the U.S. economy flatlining and at risk of falling into a new recession, the Federal Reserve lacks good tools to do much of anything about it — though that won’t necessarily stop the central bank from trying.
With a whiff of deflation in yesterday’s report on personal income and spending (see this related story in the New York Times), it would appear that sufficient cover may be developing for the central bank to again crank up the printing press this fall.