Anthony Sanders is a senior research fellow at the Mercatus Center at George Mason University.
This week, several key economic indicators will be released, but those hoping for good news on all fronts are likely to be disappointed. Tuesday's Case-Shiller index will shed some light on the housing recovery, while Friday's jobs numbers will provide a look at how recovery is shaping up across the nation. In addition to these regular reports, the Federal Reserve's Open Market Committee will meet on Tuesday and Wednesday, and after months of disappointing data on several fronts, the big question is, what—if anything—will they do?
A possibility coming out of the Fed meeting is lower interest rates through another round of "Twist," which would have the Fed buying mid-to-long-term Treasuries while selling short-term Treasuries. Another round of quantitative easing is also possible, though it would add nearly $2 trillion to the Fed's balance sheet. These policies would attempt to stimulate economic growth or reduce the high unemployment, but there are economic factors out of the Fed's control that make it difficult for Fed policy to work.
One factor is the current regulatory state. One of the newest regulatory bodies coming out of financial reform, the Consumer Financial Protection Bureau, will give a report this week on its progress. The Dodd-Frank legislation, which formed the bureau, among other regulatory agencies, is only 30 percent complete, but is already jam packed with over 8,800 pages of rules and regulations. The 10,215 regulations that were approved in the Obama administration's first three years cost $46 billion annually and brought nearly $11 billion more in one-time implementation costs. These costs continue to hit the economy during its weak recovery and make it difficult for any real growth to begin.
Second, employers don't know how they will be impacted by these regulations. Small businesses, for example, are still trying to determine how much the Patient Protection and Affordable Care Act will affect their ability to bring in new hires. At this point, many still don't know how the taxes and regulations levied in the bill will apply to them. With so many potential costs pending, businesses are likely to postpone expansion plans or new hiring until they see the true costs of the of the healthcare legislation.
The third factor is the housing market, which is still providing mixed signals as it attempts to recover. Even with all-time low mortgage rates, mortgage purchase applications remain low. The market is seemingly stable and credit availability remains tight to mortgage borrowers, so there is little the Fed can do by pushing rates down further. It remains to be seen whether further action will be enough to encourage further growth in the housing market.
Finally, additional debt issuance by the federal government has not proven effective in stimulating economic growth. As of June 12, 2012, there was a 2.33 percent increase in federal debt for every $1 of gross domestic product growth. Further growth in debt is highly inefficient as a way to stimulate economic growth and reduce unemployment.
Adding yet another unknown into the market will not necessarily lead to better results. Even if the Fed is able to increase investor confidence and bolster the stock market, which is possible, that is not the same thing as long-term, sustainable economic growth. It's time for the Fed to forget about introducing more and more economic uncertainty, and focus instead on letting the market stabilize so that Americans can turn their full attention to pulling ourselves out of this mess.