The Federal Reserve’s policy to boost the economy will lead to surging inflation and weakness for the dollar, says James Grant, editor of Grant's Interest Rate Observer.
“Specifically, the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero,” Grant wrote in The Wall Street Journal.
“Wall Street did handsprings. Even government securities prices raced higher, as if, somehow, Treasury bonds were not denominated in the currency with which the Fed had announced its intention to paper the face of the earth.”
And what was everyone cheering in the end? “The central bank's determination to fight deflation — that is, to reinstate inflation,” Grant writes.
One market, only, registered a protest, he points out.
“The Fed's declaration of inflationary intent knocked the dollar for a loop against gold and foreign currencies.”
And what of the future? The road to riches isn’t lined with “little green pieces of paper stamped ‘legal tender,’” Grant writes.
The credit troubles took the Fed unawares, he says.
“So, likely, will the outbreak of the next inflation. Already the stars are aligned for a doozy.”
Desmond Lachman, a resident fellow at the American Enterprise Institute, also opposes the Fed’s policy.
“By aggressively resorting to the printing press and by indiscriminately lending to the private sector, the Fed risks compromising longer-term economic growth,” he wrote on AEI’s web site.
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