Nouriel Roubini on The FED 0 Percent Interest Rate

Nouriel Roubini interviewed by the Nightly Business Report Mar 17th 2010

Nouriel Roubini Chairman of RGE Global Economics , on the FED's 0 Percent Interest Rate Policy

ROUBINI: "Well, yes, in the sense that the economy is still very weak and the recovery is anemic. Unemployment is going to be remaining high. There are more downsides rather than upside risks. So I expect the Fed's going to keep the Fed funds rate at zero through the middle of next year. And they might even do more quantitative easing. Even today, they signaled they may end that program at the end of March. If there was a backup in mortgage rates and that's something you cannot exclude, the last thing you can afford in an election year is a sharp increase in mortgage rates when construction activity is still very weak. So I expect more easy money "
ROUBINI: "Well, for the time being, I expect that long-term bond yields in the U.S. are going to remain low because growth is going to be weak. You'll have deflation. You'll have bouts of risk aversion. The Fed is committed to keep zero rates. The Fed might do more QE. The rest of the world is buying and accumulating reserves to the rate of $1 trillion annualized to prevent their currency from appreciating. That's going to U.S. Treasury, and for the first time in a decade, we have some domestic financing of the U.S. fiscal deficit because savings have gone up, so we don't depend on the kindness of strangers. Given all that, I don't expect bond yields to spike for the time being, but if after the election, we're a divided government, we have run-away fiscal deficit monetize them, then at some point even in the U.S., the bond market vigilantes may wake up the way they did in Greece and UK, around Europe and then you could have a spike in rates. That's a 2011 story, not this year."