Tags: Stockman | Fed | interest | rate

David Stockman: 'Benighted Folks at Fed Fueling Hellish Financial Storm'

By    |   Thursday, 29 January 2015 12:13 PM

David Stockman, White House budget director under President Reagan, doesn't think too highly of the Federal Reserve's decision Wednesday to remain "patient" in deciding when to raise interest rates.

The Fed has kept its federal funds rate at a record low of zero to 0.25 percent for six years. Stockman pulls no punches expressing his view of that policy.

"Never before in the history of the world has any central bank or other monetary authority decreed that overnight money shall be indefinitely free to gamblers or that liquid savers should have their hard-earned wealth chronically confiscated by negative returns after inflation and taxes," he writes on his Contra Corner blog.

Economists' consensus is that the Fed will raise rates around mid-year, but it could wait longer, Stockman notes.

"So an urgent question screams out. Don't these obstinate zealots realize that zero cost overnight money has only one use, and that is to fund the carry trades of Wall Street gamblers?" he asks.

"These benighted folks at the Fed are actually fueling their own hellish financial storm, thereby leaving in mortal danger the main street economy."

Star investor Bill Gross of Janus Capital Group is one of those who thinks the Fed will move around June, raising rates by 25 basis points.

"Their statement [Wednesday] indicates they still believe inflation will go back to relatively normal levels in the medium term, and they recognize the economy is stronger," he tells CNBC.

But that's not the main reason the Fed will act, Gross notes. "The real reason, at least symbolically, is that even in the face of this low inflation, they recognize that zero percent interest rates are distorting capitalism," he explains.

"Zero percent rates are moving money into the financial sector for arbitrage profits, and very little of it is going into the real economy for investments."

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David Stockman, White House budget director under President Reagan, doesn't think too highly of the Federal Reserve's decision Wednesday to remain "patient" in deciding when to raise interest rates.
Stockman, Fed, interest, rate
308
2015-13-29
Thursday, 29 January 2015 12:13 PM
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