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Posted at 12:00 PM ET, 11/18/2010

Fed move may not work, but there's 'nothing left' says top European economist

By Howard Schneider

The Federal Reserve's recent move to boost the U.S. money supply got a tepid endorsement Thursday from a top European economic agency.

While it was doubtful the Fed's "quantitative easing" -- $600 billion of fresh Treasury bond purchases -- will provide an appreciable jump in the economy, "there's not much left" to try, according to the Organization for Economic Cooperation and Development.

"This is uncharted territory," OECD chief economist Pier Carlo Padoan said in a briefing this week on the U.S. economy. He said that growth is slowing at the same time that the government needs to address its large budget deficits and scale back the fiscal stimulus programs enacted during the recession.

Combating a weak economy with looser monetary policy faces some challenges. Interest rates have been already low for an extended period of time, so it is unclear how effective the Fed's liquidity program will be in pushing them lower or prompting corporations and households to borrow and spend more. Officials in emerging markets abroad have complained that the extra cash will simply slosh into their stock and equity markets and drive up prices.

But the OECD said the policy was still justified notwithstanding the uncertainties.

"There are downside risks," Padoan said, "but we have nothing left."

On Thursday, the New York-based research group The Conference Board announced that its index of U.S. leading indicators rose for a fourth consecutive month and that jobless claims climbed less than forecast, signaling that the U.S. economy is accelerating.

By Howard Schneider  | November 18, 2010; 12:00 PM ET
Categories:  Federal Reserve, International Economics  
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