Tags: Fed | easing | price | fixing

JPMorgan Strategist Kelly: Fed Easing ‘Akin to Price Fixing’

By Dan Weil   |   Wednesday, 20 Mar 2013 01:13 PM

The Federal Reserve's massive easing program isn’t boosting the economy, says David Kelly, chief global strategist at JPMorgan Funds.

Indeed, the Fed is embarking on a “stupid policy,” he tells CNBC. “[It’s] akin to price fixing.”

Most analysts don’t expect any change to emerge from this week’s central bank policy meeting.

Editor's Note:
The Truth About the Economy — Government Documents Lead to Eerie Conclusion

The Fed is buying $85 billion of Treasurys and mortgaged-back securities a month. And it has kept the federal funds rate at zero to 0.25 percent for more than four years.

But the economy would be just as strong without the Fed actions, Kelly says. The economy expanded 0.1 percent in the fourth quarter.

What the economy lacks is confidence, not liquidity, Kelly explains. "I don't see why the Federal Reserve is boosting liquidity, [thereby] depressing confidence, to try and achieve [low] long-term interest rates."

Kelly favors an increase in interest rates from the Fed, because that would be a signal of economic strength, allowing banks to make more profitable loans and consumers to gain enough confidence to lift their spending.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index fell to a 14-month low of 71.8 in March.

A survey of 50 economists conducted by The Wall Street Journal last week indicates that Kelly shouldn’t hold his breath.

The average forecast is for the Fed to begin decelerating its monthly bond purchases in November. The economists predict that the central bank will cease its bond buying in May 2014.

And they project the Fed will start to consider raising the fed funds rate in June 2015, when the unemployment rate finally drops to 6.5 percent.

The central bank has said it doesn’t plan on hiking rates until the jobless rate hits that level. Unemployment was 7.7 percent in February.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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