Tags: Morgan | Fed | rates | inflation

Money Manager Herb Morgan: Fed Must Act to Halt Inflation

By    |   Monday, 21 July 2014 12:47 PM

The Federal Reserve must move now to nip inflation in the bud, says Herb Morgan, CEO of money management firm Efficient Market Advisors.

The Fed has an inflation target of 2 percent. The consumer price index rose 2.1 percent in the year through May. But the Fed' favored inflation gauge, the personal consumption expenditure price index, climbed 1.8 percent during that period, 1.5 percent excluding food and energy.

The central bank did a good job of reacting to the 2008 financial crisis, Morgan writes in an article for Forbes. "In 2008 massive danger required a massive action, and the Fed’s actions have been proved right," he says.

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

But the Fed's policy "came with very real risks," Morgan argues. "The lowest interest-rate environment ever seen has encouraged risk-taking that could lead to the formation of dangerous bubbles. The massive increase in the monetary base sows the seeds for inflation."

So what should the central bank do?

"I believe that the Fed should take steps now to prevent an upward movement in consumer inflation," Morgan notes.

While many economists expect the Fed to begin raising rates in the second quarter of 2015, "that may not be soon enough," he states.

Meanwhile, former White House budget director David Stockman believes the Fed already has created bubbles in asset markets, and the conflict in Ukraine may pop them.

"We're at the very edge of a bubble which has been inflating since early 2009, and as a result of that any time now we could be hit by something you don't expect like this incident [last week's plane shoot-down] in the Ukraine or anything else that will take the market down in a big way," he tells CNBC.

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

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The Federal Reserve must move now to nip inflation in the bud, says Herb Morgan, CEO of money management firm Efficient Market Advisors.
Morgan, Fed, rates, inflation
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2014-47-21
Monday, 21 July 2014 12:47 PM
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