The Federal Reserve's easy money policy is fraught with risk, asserts investment manager Michael Farr, president and majority owner of Farr, Miller & Washington in an opinion piece for The Huffington Post.

"The Fed's path of solving a debt problem with more debt (through policies that lower interest rates) is ill-conceived and short-sighted," he writes.

Despite the Fed's effort to expand consumer credit, the largest consumer lending sector, the mortgage industry, remains depressed, Farr points out.

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Although they've eased somewhat since the financial crisis, mortgage requirements remain tight.

Banks have had to build capital and liquidity levels to meet new regulations, he explains. Regulators have penalized banks for holding risky assets, even while bank regulators attempt to expand credit.

"This contradiction of regulatory agendas," Farr stresses, "has been driving bank management teams mad."

The Fed's quantitative easing, a program of purchasing large amounts of government and mortgage-backed bonds, pushed mortgage rates so low it made mortgage lending uneconomical for banks.

"Many banks are reluctant to underwrite mortgages for their own portfolio as they do not want to own assets of such long duration and carrying such low interest rates," he argues. "Banks typically attempt to 'match-fund' their assets and liabilities in order to minimize interest-rate risk."

Unfinished regulations are also hampering mortgage lending. For instance, because many regulations are still being written, banks do not know how much credit risk to retain, he adds.

"Without knowing all the rules, it's hard to make sound investment decisions."

The Congressional Budget Office predicts the private-label mortgage originations will return to its former strength over the next decade as banks loosen lending standards.

Farr believes that optimistic forecast is hard to justify given the uncertainty banks face.

Plus, promoting looser lending may lead to reckless lending and create loans borrowers cannot repay. It could also boost home prices, creating an affordability problem.

"In our view, the Fed needs to account for the prices of things like stocks, houses and college tuition as they formulate monetary policy."

Others have also warned about the Fed's easy monetary policies.

"Signs of possibly dangerous froth in the markets have multiplied in recent weeks, from unusually low yields on risky corporate junk bonds to soaring luxury real estate prices to record highs for the New York stock market indexes," state The Washington Post's editorial board.

Fortunately, the Fed has indicated it plans to end its quantitative easing in October, The Post reports.

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