There are five reasons why excessively low rates from the Federal Reserve may be retarding the economy and blocking job growth, according to BlackRock's Rick Rieder.
Rieder, chief investment officer at BlackRock Fundamental Fixed Income, said the central bank's impact on both issues is unintended but real.
For starters he said the Fed's near-zero interest rate policies are forcing older workers to delay retirement.
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"Excessively low rates are making it expensive for individuals to retire, as potential retirees view investment income generation from fixed income products as too meager to support a reasonable standard of living. As older people are staying in the workforce longer, they're crowding out younger workers and stunting the job prospects of the young,"
Rieder wrote on BlackRock iShares blog.
Also, because companies cannot estimate the true level of economic growth because of the Fed's easy money props, they are holding off on committing capital by delaying or reducing investment and hiring, he explained.
Rock-bottom interest rates may also allow companies to buy back stock or pay dividends on attractive financing terms rather than reinvest in business growth.
Inflation from a two-tier employment market may end up being harder to control than the Fed apparently believes, according to Rieder. He said wages are rising for workers in specialized areas of the economy, while those without the latest skills are making up the long-term unemployed.
"Finally, unconventional monetary policy of recent years has encouraged significant bouts of capital misallocation, resulting in crowded trades, correlated risks and the overly stretched valuations seen in markets today. These, in turn, are increasing systemic risk, raising the potential for a violent capital unwinding," Rieder predicted.
Rieder said he looks forward to the day when Fed moves toward "easy" monetary policy from "excessively easy" policy. "The utility of the Fed's zero interest rate policy is now exceeded by the costs, similar to what happened to quantitative easing before it."
Some analysts are starting to doubt the U.S. economy is poised to accelerate into higher gear, according to
USA Today.
They pointed to feeble consumer spending, and the unexpected contraction of GDP by 2.9 percent in the first quarter, which more optimistic economists wrote off to temporary bad weather.
"When it gets to a 3 percent contraction, there's something wrong beyond snow," said Cliff Waldman, senior economist of MAPI, the manufacturing industry's research arm.
Rising food and energy prices also worry some economists, USA Today noted.
"The juxtaposition of pathetic economic growth and accelerating inflation doesn't speak wonders about the economy's growth potential," Michael Feroli of JPMorgan Chase said in a research note.
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