Tags: Welch | stock | regulations | Fed

Jack Welch: Fed Has ‘Pushed Us in More Risk-on Assets’

By Dan Weil   |   Friday, 08 Mar 2013 08:33 AM

Count former General Electric CEO Jack Welch as one of the many experts who believe that the stock market’s recent surge owes everything to the Federal Reserve’s massive easing program.

The Dow Jones Industrial Average has risen to record highs three days in a row, closing at 14,329.49 Thursday.

“People are desperate for yield, and they [Fed officials] have pushed us in more risk-on assets. That's what's happening,” Welch tells CNBC.

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So will all this end badly? “I don't know the answer to that, and no one does,” he says.

“Obviously it's scary, uncharted territory, but the Fed chairman seems to think he has the way to unwind this at the right time without severe consequences. Let's enjoy the party.”

There’s a tension in the economy between the Fed and burdensome regulations, Welch says. “The economy is sitting here, buoyed from underneath by the Fed with all this QE [quantitative easing],” he explains.

“And pressing down from the top is an incredible array of new regulations and pressures. So you've got these two forces working against each other.”

The Obama administration has proposed 1,200 regulations, which is five times the total of the George W. Bush administration in its first four years and 3 ½ times the Clinton administration’s total for its first term, he notes.

“And we haven't yet seen the full impact of Obamacare, we haven't yet seen the full implication at all of Dodd-Frank.”

If the government can ever cut companies a break on the regulatory front, the economy can grow a lot more strongly, Welch maintains. “This economy is really ready to go.”

As for the Fed, its easing is helping to boost corporate profits, Welch says. “Right now the Fed's got this market really going, and corporate profits are in fact improving,” he says. “Companies are doing their job, so we've got a much more competitive economy, without question.”

When it comes to jobs, Welch says they stem from a growing economy, not the efforts of politicians. “So the president and everybody else should be talking about how do you grow? How do we make you grow? How does every regulation that comes out help us grow?” he asks.

Companies aren’t hiring because they don’t see economic growth, Welch says. “We need 3.5 to 4 percent growth to really put a dent in this thing.” Gross domestic product gained only 0.1 percent in the fourth quarter.

Pimco CEO Mohamed El-Erian also sees a tension between the Fed and the government, but a different part of the government than Welch has in mind.

All eyes are on “a rather unusual tug of war that has developed in Washington,” El-Erian writes on the Financial Times web site.

That’s “between a dysfunctional Congress set on creating headwinds to a slowly-recovering U.S. economy, and a central bank willing to roll out one untested measure after the other in its attempt to steer the economy toward higher growth and more robust job creation.”

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