Tags: Gorman | Fed | interest | rates

Morgan Stanley's Gorman: Fed Should 'Definitely Raise' Interest Rates in June

By    |   Thursday, 22 January 2015 12:06 PM

Experts' opinions on when the Federal Reserve should begin raising interest rates range from immediately to next year.

Most economists believe the Fed will start moving around mid-year, and that suits Morgan Stanley CEO James Gorman just fine.

"I would definitely raise [rates] in June," he tells CNBC. "It's a sign of strength. It's a sign of confidence. It's recognition that the U.S. is back on track."

GDP growth averaged 5.8 percent in the second and third quarters. The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.

Refraining from a rate hike would invite big trouble, Gorman notes. "You run the potential on the side of an asset bubble. And that's what got us into trouble in the crisis."

He sees the economy growing 3 to 4 percent over the next few years, citing low unemployment, the dollar's strength, the housing market's rebound and falling oil prices.

"The U.S. is doing terrifically. The problem is we have so much scar tissue from the crisis, we just don't like admitting it."

David Malpass, president of Encima Global research firm and former adviser to Ronald Reagan, doesn't think the Fed should wait long to hike interest rates.

"Extending the zero interest rate policy, one of the Fed’s options, would be harmful because the zero interest rate freezes interbank markets and re-channels credit away from the economy’s growth engines — new businesses," he writes in an article for Forbes.

"The zero interest rate is a government-imposed price control. The result is a credit rationing process in which credit flows to well-connected borrowers at the low price but avoids new and small businesses."

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Experts' opinions on when the Federal Reserve should begin raising interest rates range from immediately to next year.
Gorman, Fed, interest, rates
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2015-06-22
Thursday, 22 January 2015 12:06 PM
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