The Federal Reserve is taking too much time to raise interest rates and reverse the other elements of its easing program, says Stephen Roach, a senior fellow at Yale University.
"America’s Federal Reserve is headed down a familiar — and highly dangerous — path," he writes in an article for Project Syndicate
"Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic."
In its policy statement last week, the central bank said it would be "patient" in raising rates. Fed Chair Janet Yellen said a rate hike is unlikely before April. The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent for the last six years.
"[Central bank] policy levers . . . remain at their emergency settings, even though the emergency ended long ago. While this approach has succeeded in boosting financial markets, it has failed to cure bruised and battered developed economies," Roach explains.
"Now it is time for the Fed and its counterparts elsewhere to abandon financial engineering and begin marshaling the tools they will need to cope with the inevitable next crisis. With zero interest rates and outsize balance sheets, that is exactly what they are lacking."
Meanwhile, Helena Morrissey, CEO of Newton Investment, says central bank stimulus has made investors overly complacent.
"Investors are extrapolating the past six years, a time when the biggest monetary policy experiment of all time has fuelled a complacent belief in the ability of central banks to do whatever it takes to underpin asset prices," she writes in The Telegraph
Morrissey says "mind-boggling" amounts of quantitative easing have created money "out of thin air to buy financial assets." Investors have "quickly became addicted to the money creation drug."
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