The Fed recently announced plans to buy $40 billion in mortgage-backed securities held by banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing (QE).
The announcement marks the third time the Fed has rolled out QE measures to jolt the economy since the 2008 financial crisis, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.
QE aims to stimulate the economy by injecting the financial system full of liquidity via bond purchases that push down interest rates to encourage investing, job demand and stock market gains.
Fed Chairman Ben Bernanke claimed in a recent speech that past rounds of QE helped contribute to the creation of 2 million jobs; however, such tools carry diminishing returns and this latest round will likely do little to put jobless Americans back to work, Moya said.
"We’re ultimately going to see that it’s not going to be as effective as the first two and, ultimately, it’s just going to devalue the dollar," Moya told Newsmax.TV in an exclusive interview.
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Expect commodities prices to rise, as the increase in liquidity coming from Federal Reserve intervention will flow towards hard assets like oil and gold, Moya said.
But aside from certain asset classes, don't expect recovery to gain serious traction from monetary stimulus tools. Until the White House and Congress address fiscal imbalances such as widening deficits and hefty debt burdens, the economy will remain sluggish.
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"Until we have D.C. straightened out, until we have the fiscal cliff addressed — that’s going to be the key issue for job growth," Moya noted.
"We’re going to see commodity prices rise and until we have D.C. straightened out, until we have the fiscal cliff addressed. That’s going to be the key issue for job growth," Moya added.
At the end of the year, tax breaks are set to expire, while automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country back into a recession if left unchecked by Congress.
"More printing of money is not really what the economy needs," Moya said; QE is often referred to as printing money out of thin air.
"Right now the Fed’s mandate is price stability and employment, and we’re not going to really see a tremendous amount of benefit from that."
Many economists have said businesses are putting off expanding and hiring until the fiscal cliff is addressed, as for now, too few firms know what they will be paying in taxes next year.
The dollar, meanwhile, will post gains against other currencies, though not the euro, at least in the short term.
"The euro versus the dollar, it’s an ugly dog contest. Both economies are not looking good at all right now," said Moya.
The European Commission, the European Central Bank and the International Monetary Fund have arranged bailout financing to keep Greece in the eurozone, but sooner or later, the country will default and abandon the single currency.
The country today is pushing through painful austerity measures such as spending cuts and public-sector layoffs to streamline its economy, a requirement imposed on the country in exchange for rescue financing.
Still, such measures only exacerbate an already crippling recession, and true growth won't return until the country defaults and returns to the drachma.
"Greece is going to have to exit the euro eventually, whether it’s six months, one year, five years that is going to have to happen. It’s impossible because what we’re doing right now is just delaying the inevitable," Moya said.
"They’re not going to have job growth, their economy is not going to recover and there’s going to come a moment when we start to see more protests and we start to see that happen again, then we might see the euro give back a lot of its gains."
Still, expect the euro to strengthen against the greenback in the meantime, thanks to QE measures in the United States and the relative calm that is prevailing over Europe today.
"For the most part, the euro is going to be on the path for a stronger move," Moya said.
"Ultimately, the euro’s going to be a little bit stronger for the next month, maybe until the end of the year."
Read more on Newsmax.com: Currency Expert Ed Moya to Moneynews: QE3 Will Devalue Dollar, Do Little Else
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