Tags: Malpass | Fed | rates | debt

Malpass: Fed's 'Wild Excess' Is 'So Egregious'

By    |   Thursday, 06 November 2014 01:52 PM

David Malpass, president of Encima Global, an economic research firm, isn't too enamored with the Federal Reserve's easing program.

"One of the most important functions of constitutional government is to . . . facilitate sound money, which is at the core of free markets and property rights, central tenets of the rule of law and the ability of a country to attract investment," he writes in an article for Forbes.

"This is why the current monetary and regulatory regimes' wild excesses are so egregious."

The Fed has taken on $2.6 trillion in uncollateralized, interest-paying liabilities owed to banks to fund its bond purchases, Malpass notes. The Fed's balance sheet has bulged to $4.5 trillion, thanks to its quantitative easing.

"The Fed has now decided to hold on to its investment portfolio for years, perhaps decades, funding it primarily with short-term bank debt, on which the Fed (meaning taxpayers) will pay interest that could top $100 billion," he argues.

The solution is for the Fed to "relent," Malpass insists. "It's been allocating capital in the wrong direction, toward bigness, causing income inequality, distorting markets around the world and slowing growth and investment."

The central bank needs to build the case for higher interest rates, Malpass writes.

Meanwhile, Charles Lieberman, chief investment officer at Advisors Capital Management, says strong gains in hiring will show the Federal Reserve is moving too slowly to raise rates.

The unemployment rate registered 5.8 percent in October, a six-year low. "The Fed has said the unemployment rate is going to 5.5 percent by the end of next year," he tells Yahoo.

But the rate is "headed down at a pretty rapid clip, it's going to get there way ahead of the Fed, perhaps even in the spring of 2015."

The problem is that the Fed isn't expected to raise interest rates until mid-2015. Its federal funds rate target stand at a record low of zero to 0.25 percent.

"What happens when the unemployment rate gets to 5.5 percent, and they are still close to zero?" Lieberman asks. "It shows they are way behind the curve, and so they will have to catch up. That's going to scare the market."

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David Malpass, president of Encima Global, an economic research firm, isn't too enamored with the Federal Reserve's easing program.
Malpass, Fed, rates, debt
Thursday, 06 November 2014 01:52 PM
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