Tags: Fed | easy | money | addiction

Financial Author William Cohan to Fed: 'End the Easy Money Addiction'

Financial Author William Cohan to Fed: 'End the Easy Money Addiction'
(Dollar Photo Club)

By    |   Wednesday, 02 September 2015 08:01 AM

In the wake of the financial market blowout of the past two weeks, some Federal Reserve officials have questioned the need to raise interest rates this month or perhaps even this year.

But financial author William Cohan says it would be a mistake to wait. "The right answer is self-evident: end the easy-money addiction, raise rates in September and begin the healing," he writes in The New York Times.

The Fed has kept short-term interest rates at a record low near zero since December 2008, and its balance sheet has ballooned to $4.5 trillion.

"The case for raising rates is straightforward: like any commodity, the price of borrowing money—interest rates—should be determined by supply and demand, not by manipulation by a market behemoth," Cohan says.

The Fed's three rounds of quantitative easing manipulated the money markets, "deluding investors into underestimating the risk of various financial assets they were buying," Cohan states.

To be sure, the message from Fed officials at a conference in Wyoming last weekend was that plans for a rate hike this year haven't been wiped away.

Jack Ablin, chief investment officer at BMO Private Bank, agrees with Cohan that the Fed should act now.

"It's about time the Federal Reserve normalize interest rates," he writes on CNBC.com.

"The economy is much stronger than it was in December 2008, the time when the Fed's current target for rates was set." GDP grew 3.7 percent in the second quarter.

Central banks across the world have mounted massive easing programs since the 2008 financial crisis to buoy their economies.

But, "heavy-handed government involvement in economies and markets carries risks," Ablin says. One market that is seeing excessive speculation is art, he says. Six-month sales at auction house Christie just hit a record $4.5 billion.

"The longer central banks stay involved, the more we will see this type of speculation," Ablin maintains.

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In the wake of the financial market blowout of the past two weeks, some Federal Reserve officials have questioned the need to raise interest rates this month or perhaps even this year.
Fed, easy, money, addiction
329
2015-01-02
Wednesday, 02 September 2015 08:01 AM
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