The Federal Reserve's move to pump hundreds of billions of dollars into the US economy will have relatively little effect in supporting the recovery, former Fed chairman Paul Volcker said. "I don't think that (support) will be very large," Volcker, who now chairs President Barack Obama's economic recovery advisory board, on Friday told a press conference in the South Korean capital. "That doesn't say there won't be any.
"It (the Fed) certainly hopes there will be some but I don't think that action alone will make a very dramatic difference."
The Fed announced Wednesday it would pour an additional 600 billion dollars into the economy through Treasury debt purchases, to try to keep a fragile recovery moving and ease high unemployment.
Volcker, who tamed soaring US inflation in the 1980s, said the "quantitative easing" was intended to stimulate the economy through achieving lower interest rates.
"Interest rates are already so low that it's easy to over-estimate this," he added.
"There's more talk about this than, frankly, that I think it's worth."
On the bond market, there were two competing problems with the latest stimulus, he said.
"They like to get a little push in the economy currently, but they don't want to scare people to death about inflation in the future. Those two things work in opposite ways on interest rates."
The International Monetary Fund has also said the impact of the quantitative easing may be modest.
Volcker, who earlier gave a speech on rebalancing the world economy, said talk of a currency war was "very much overdone" but measures must be taken to address imbalances.
"An underlying problem has been that most countries like to be in surplus... but it is mathematically impossible for everyone to be in surplus."
Volcker said it was understandable for emerging economies to build foreign exchange reserves to help curb gains in their currencies against the dollar, but extreme buildups in dollar reserves could hurt the US economy.
Currency issues and trade imbalances are set to dominate next week's summit in Seoul of the Group of 20 top world economies.
Volcker said the grouping has a constructive purpose in bringing together leaders from around the world.
"If it does nothing else, it reminds them all that they have a common problem and none of these problems can be solved by unilateral action by any of them."
Asked about the concept of banks and other finance firms deemed "too big to fail", Volcker said that even if some of them were broken in three they would still be too big to fail.
"I don't detect any great international movement to carve them up," he said. "The United States and others may take some action to say they can't get much larger by merger... and I favour that. I think these big institutions are big enough."
