Tags: Kass | Fed | rate | interest

Seabreeze Partners' Kass: Confidence in Fed May Now 'Disintegrate'

By    |   Wednesday, 04 February 2015 11:51 AM

Hedge fund heavyweight Doug Kass, president of Seabreeze Partners, apparently doesn't think too highly of the extended duration of the Federal Reserve's easing program.

"The Ah-ha Moment may be at hand, in which confidence in the Federal Reserve (and the other central banks around the world) disintegrates under the weight of a too-lengthy period of zero interest rates and excessive QE and injections of other liquidity," he writes in his blog on Tumblr.

"They explored that space for too long, and the marginal impact of ever more [stimulus] might be diminishing. Indeed, the impact of ever lower interest rates may now be net negative to the U.S. economy," Kass notes.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008, and its balance sheet has expanded to $4.6 trillion from various forms of quantitative easing.

"The Federal Reserve has no more [tools] and that could prove to be a big mistake if domestic economic growth is slowing (as it now appears). This is occurring just at a time in which a quarter of the world's GDP is in recession, or experiencing sub-1 percent real growth.

The Fed is expected to begin raising rates around mid-year. It hasn't indicated when it will start shrinking its balance sheet.

Meanwhile, Byron Wien, senior adviser to Blackstone, says the Fed will probably move on rates in the first quarter.

"Many believe this is unlikely because Europe is near or in a recession and Japan is suffering as well," he writes in an article for Barron's. "They reason that increased rates will only make the dollar stronger and hurt our trading partners." They also point to sluggish wage growth — 1.7 percent in 2014.

"My view is that the Fed is most responsive to domestic data: the U.S. economy has been growing at 5 percent real during the last two quarters, unemployment has dropped below 6 percent, and wages are starting to increase."

Wien wrote his column before Friday's news that GDP expanded 2.6 percent.

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Hedge fund heavyweight Doug Kass, president of Seabreeze Partners, apparently doesn't think too highly of the extended duration of the Federal Reserve's easing program.
Kass, Fed, rate, interest
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2015-51-04
Wednesday, 04 February 2015 11:51 AM
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