Tags: Welch | Fed | rates | dollar

Jack Welch: Fed Would Be 'Insane' to Raise Interest Rates

By    |   Wednesday, 04 February 2015 11:07 AM

Many have criticized the Federal Reserve for months, and in some cases years, for leaving short-term interest rates at record lows. The critics argue that savers are getting cheated and market bubbles are brewing.

But one — former General Electric CEO Jack Welch — thinks the Fed would be making a huge mistake to raise rates soon.

"It would be insane," he tells CNBC. "Your exports would fall off the table even more. The dollar would strengthen. It does nothing at all for the U.S. economy . . . with everybody around the world easing."

Rising rates boost the dollar by making yields on U.S. fixed-income investments more attractive to global investors. And an ascendant dollar hurts exports by making them more expensive in foreign currency terms.

The dollar has risen to multi-year highs against a range of currencies in recent weeks, including an 11-year peak against the euro and a seven-year zenith against the yen.

Economists' consensus is that the Fed will begin raising interest rates around mid-year. The central bank's federal funds rate target has stood at a record low of zero to 0.25 percent for six years.

"I think it would be ludicrous to raise them [rates] right now with the situation that we have. We've got oil problems. And in the U.S., we got a wealth effect of oil that we don't talk about, which is broader than just the direct oil. And we have a strong dollar, which is killing exports."

Hedge fund heavyweight Doug Kass, president of Seabreeze Partners, doesn't agree with Welch.

"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 [quantitative easing] 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."

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Finance
Many have criticized the Federal Reserve for months, and in some cases years, for leaving short-term interest rates at record lows. The critics argue that savers are getting cheated and market bubbles are brewing.
Welch, Fed, rates, dollar
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2015-07-04
Wednesday, 04 February 2015 11:07 AM
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