Former Fed Governor Warsh Skeptical of QE3

Former Federal Reserve Governor Kevin Warsh said the risks involved with the announced QE3 round of easing are outweighed by the benefits, which he sees as modest at best. “The Chairman has gone all in.” Interviewed this morning on CNBC, Warsh, now a fellow at Stanford's Hoover Institution, says QE 3 is an “immodest move by a modest man” referring to Fed Chairman Bernanke. Warsh says that the known economic risks of the European debt crisis, the softness in Asia, and the weakness in the U.S. have been known for some time. He wants to know what the Fed knows that would make it take such a risky approach. “It has to be more than just the U.S. unemployment rate. I worry that the Fed knows something about the economy that it's not telling.” Warsh sees the Fed as trying to boost an economy with measures that will prove to be ineffective. He thinks the problem is fiscal not monetary policy. “The iPhone5 will have a bigger effect on the economy than QE3” “Washington should focus more on the long-term. The private sector is better at asset allocation. We need trade and tax policy to help this economy.” “Central banks have policies to buy time in the short term for fiscal policies to work. What the Fed did yesterday is try to buy time for the long term.” Watsh left the Board of Governors in 2011 after voicing skepticism about QE1 and 2. He joined the Fed after serving as a economic adviser to President Bush and prior to the White House worked at Morgan Stanley where he specialized in mergers and acqusitions.