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James Grant: Fed Is a 'Relic,' Zero-Rate Policy Has Hurt US Economy

James Grant: Fed Is a 'Relic,' Zero-Rate Policy Has Hurt US Economy
Wall Street commentator and author James Grant (AP Photo/Bebeto Matthews)

By    |   Thursday, 05 November 2015 12:31 PM

The Federal Reserve is "a relic" and the central bank’s out-of-step zero interest-rate policies are only hurting America instead of leading the nation into financial prosperity, says James Grant, editor of Grant's Interest Rate Observer.

“The Fed is a relic of the age of command and control. The Fed is an anachronism,” Grant told Bloomberg TV.

“The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U.S. economy,” he said.

“How do they know the funds rate ought to be zero?” he asked.

The central bank has held its target for the federal-funds rate — the rate that banks charge each other for overnight loans — at zero to 0.25 percent since 2008.

U.S. central bankers have waited for labor markets to move closer to their goal of full employment.

The unemployment rate stood at 5.1 percent in September, slightly above the 4.9 percent rate that officials estimate would satisfy their mandate. The Bureau of Labor Statistics will release the October jobs data Friday.

Some economists predict the Fed probably will press ahead next month with its first interest-rate increase since 2006 if payroll growth averages the roughly 180,000 that experts project for October, Bloomberg reported.

Fed Chair Janet Yellen told lawmakers on Wednesday that the economy was "performing well."

But Grant said that despite all the strategic planning, central-bank officials are in way over their heads.

“We are under the governance of former tenured economics faculty who think they know more than they can possibly know,” he said.

“Let us at least revert, if not to some perhaps Utopian dream of a perfect monetary standard, at least let us get out of the business of the suppression of interest rates, the administration of prices and the government sponsorship of asset bull markets,” he said.

He also warned that the 2008 financial crisis “didn’t come from nowhere, it came, in my opinion, from the socialization of credit risk and from the manipulation of prices.”

As further evidence, he said central bankers waste time on such theories that strengthening currency will force deflation, such as earlier this year when the Wall Street Journal reported that Cleveland Fed Economists concluded that strong dollar’s drag on prices will not cause deflation.

“Don’t we want money to go further? Most Americans spend most of their weekends looking for bargains, but Monday through Friday, so say the central bankers, we should be terrified of the prospect and the fact of enhanced purchasing power,” he said. “This propaganda about deflation is so much noise, it’s very, very wrong-headed. “

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The Federal Reserve is "a relic" and the central bank’s out-of-step zero interest-rate policies are only hurting America instead of leading the nation into financial prosperity, says James Grant, editor of Grant's Interest Rate Observer.
jim grant, fed, zero rates, bloomberg TV
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2015-31-05
Thursday, 05 November 2015 12:31 PM
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