Tags: Grantham | Yellen | rates | policy

GMO's Grantham Rips Yellen on Rates Policy

By    |   Tuesday, 22 July 2014 08:06 PM

Recent comments from Federal Reserve Chair Janet Yellen signal she won't raise interest rates to fight bubbles in financial markets, and that's a mistake, asserts Jeremy Grantham, founder of money manager GMO.

“She will not use interest rates to head off or curtail any asset bubbles encouraged by the extremely low rates that might appear," he writes in the firm's quarterly commentary.

"History is clear: very low rates absolutely will encourage extreme speculation. But Yellen will, as Greenspan and Bernanke before her, attempt to limit only the damage any breaking bubbles might cause."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

"The evidence against this policy after two of the handful of the most painful burst bubbles in history is impressive," he writes.

"I had thought that central bankers by now, after so much unnecessary pain, might have begun to compromise on this matter, but no such luck, at least in the case of the Fed."

Many economists don't think the central bank will raise its federal-funds rate target, now at a record low of zero to 0.25 percent, until at least April.

Meanwhile, Jim Paulsen, chief investment strategist at Wells Capital Management, wasn't too impressed with Yellen's comments last week warning that some stock valuations are stretched.

"If there is a bubble generated, you’d have to say the Federal Reserve with their massive zero interest rate, $3.5 trillion excess reserve policy is part and parcel the foundation for any bubble creation," Paulsen told Yahoo. "Rather than warning us, they should normalize policy."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Recent comments from Federal Reserve Chair Janet Yellen signal she won't raise interest rates to fight bubbles in financial markets, and that's a mistake, asserts Jeremy Grantham, founder of money manager GMO.
Grantham, Yellen, rates, policy
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2014-06-22
Tuesday, 22 July 2014 08:06 PM
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