Tags: Brusca | Federal Reserve | easing | inflation

Economist Brusca: Fed's Easing Will Spark Inflation

By    |   Wednesday, 30 Jul 2014 08:15 AM

Inflation hawks warn that the Federal Reserve's massive stimulus program will accelerate price increases, and independent economist Bob Brusca says they're right.

The Fed has left its federal funds rate target at a record low of zero to 0.25 percent since December 2008. And its balance sheet has mushroomed to $4.4 trillion through quantitative easing.

"The Fed's balance sheet is huge," Brusca told CNBC. "I think they kept interest rates very low for a very long period of time."

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The central bank probably won't recognize the inflation threat until it's too late, he said. "They think there's a lot of slack, and therefore when bad things happen, they don't believe it. And that's the problem. When bad things happen you have to believe it."

Consumer prices rose 2.1 percent in the 12 months through June.

Internal strife over policy also is a problem at the Fed, Brusca said. "A division is also going to make it harder to do the right thing in a timely fashion."

Meanwhile, Sheila Bair, former chair of the FDIC, warns that reverse repurchase agreements, a money-market operation which the Fed may use when it decides to boost interest rates, could cause trouble.

"The mere existence of this facility [reverse repos] could exacerbate liquidity runs during times of market stress," she writes in The Wall Street Journal.

"Borrowers in the short-term debt markets will have to compete with it for investment dollars, and all, to varying degrees, will be viewed as higher risk than lending to the Fed."

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Inflation hawks warn that the Federal Reserve's massive stimulus program will accelerate price increases, and independent economist Bob Brusca says they're right.
Brusca, Federal Reserve, easing, inflation
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2014-15-30
Wednesday, 30 Jul 2014 08:15 AM
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