Fed’s bold plan still might not jolt slow economy

Stimulus » Investors buy in, but economists question level of impact.

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Bernard Baumohl, chief global economist at the Economic Outlook Group, thinks the parties will reach a compromise after the election, avoid the fiscal cliff and give consumers and businesses confidence to spend more.

"Once you have greater clarity (about government policy), then I think people will take advantage of the lower interest-rate environment" engineered by the Fed, he says.

Baumohl predicts the economy will grow 3.2 percent next year, double what he expects for 2012. The Fed itself is less optimistic: It foresees growth of between 2.5 percent and 3 percent next year after growth of no more than 2 percent this year.

David Jones, chief economist at DMJ Advisors, says the Fed’s action Thursday reflects its frustration over chronic high unemployment.

"The Fed is putting the pedal to the metal and pushing the accelerator down to the floor board," Jones says.

But he says the Fed is reaching a point of diminishing returns after nearly four years of aggressive efforts to help the economy. Its latest actions might trim a mere 0.1 percentage point from the unemployment rate over the next year and boost growth by a modest 0.2 percentage point, Jones says.

In the short term anyway, the economy might actually receive a bigger boost from Apple’s new iPhone 5.

Michael Feroli, chief US economist at JPMorgan, calculated that the iPhone might add 0.25 to 0.5 percentage point to the annual growth rate in the last three months of 2012.

"I wouldn’t be surprised" if the iPhone does more for the economy, Feroli said in an e-mail. "At the end of the day, economic growth is about producing more and better goods and services."

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