Tags: price control | federal reserve | price control | ben bernanke

James Grant: Fed's Interventionist Policy Amounts to 'Price Control'

By    |   Wednesday, 29 January 2014 07:13 PM

While the Federal Reserve announced its second tapering of quantitative easing (QE) Wednesday, James Grant, editor of Grant's Interest Rate Observer, is highly critical of how the central bank is conducting policy.

"It strikes me that the Fed in substance, if not in name, is engaged in a massive experiment in price control," he told CNBC.

"They don't call it that. They fix the [federal] funds rate. They manipulate the yield curve. . . . I said 'experiment in,' but there is no really suspense about how price control turns out. It turns out invariably badly."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Some experts say the strong gains by stock prices over the last year validate QE, but Grant disagrees. After the Fed's three rounds of QE, investors can't trust market valuations, he says.

The Fed is an agent of distortion, Grant says. "They have their fingers, their thumbs, on the scales of finance," he said. "To change the metaphor, we all live to a degree in a valuation hall of mirrors. Who knows what value is when the Fed fixes the determining interest rate to zero."

Meanwhile, the Fed has tapered by $10 billion at each of its last two meetings, leaving its monthly bond buying at $65 billion.

Many experts agreed with the Fed's decision to taper stimulus yet again.

"Ultimately, the Fed sort of had no choice but to reduce purchases at this meeting," Dan Greenhaus, chief strategist at BTIG brokerage, told the Associated Press. "If they had paused, they risked sending a signal to markets that they lacked conviction."

The central bank launched its current round of bond purchases in September 2012, its third such effort since the financial crisis in late 2008.

"The Fed's action represents a continuation of its resolute determination to end (bond purchases) during 2014," Daniel Alpert, managing partner at Westwood Capital in New York, told Reuters. "The policy has hit its 'sell by' date."

While Grant is obviously quite critical of the Fed, others say the verdict isn't in yet for the tenure of Fed Chairman Ben Bernanke, who leaves office Friday.

“Bernanke’s legacy will be determined by how successful [incoming Chair Janet]Yellen is in navigating from massive easing to normal interest rates, and that will likely entail even more imagination and a lot of luck,” Joel Naroff, president of Naroff Economic Advisers, told MarketWatch. Naroff also is a member of the Newsmax Financial Braintrust Alliance.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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While the Federal Reserve announced its second tapering of quantitative easing (QE) Wednesday, James Grant, editor of Grant's Interest Rate Observer, is highly critical of how the central bank is conducting policy.
price control,federal reserve,price control,ben bernanke
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2014-13-29
Wednesday, 29 January 2014 07:13 PM
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