Tags: Rupkey | danger | Federal Reserve | policy

Economist Rupkey: Fed's Low Rates 'Distorting the Market'

By    |   Wednesday, 23 October 2013 09:12 PM

The Federal Reserve has kept the federal-funds rate target at zero to 0.25 percent for almost five years, and Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, finds that worrisome.

“It's a little dangerous keeping short-term rates down at this low a level just to put people who have been out of work for two years back to work and to try keeping financial market conditions easy,” Rupkey told Newsmax TV in an exclusive interview.

“There are about 144 million people with jobs, and they're savers. It's distorting the market if you keep the rate on their savings next to zero for too long.”

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Rupkey is actually more worried about the Fed normalizing rates than he is about it exiting its quantitative easing.

“This Federal Reserve has kept short-term rates down lower for longer than any other Fed in history,” he said. “That might be changing the way we save, spend and invest.”

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

But Rupkey has a lot of confidence in the ability of Janet Yellen to guide the Fed. “I'm sure she'll make the needed changes when the time comes,” he said. President Barack Obama has nominated Yellen to succeed Ben Bernanke as Fed chairman.

Meanwhile, Rupkey sees little evidence of a housing bubble. Home prices have rebounded sharply over the past 18 months or so, but that’s after falling or moving sideways for five to seven years, he says.

Prices have risen about 8 to 9 percent over the past year, Rupkey says. “If that continues every year for the next five years, that would be a new bubble. But not at this level, it's too early.

He’s not too concerned about the 1.9 percent drop in existing home sales reported for September. “It would have to come down quite a bit” to cause worry, Rupkey says.

“What we're seeing is that existing home sales are really at anywhere from a 5 million-5.5 million annual rate. That rate is back to where we were in the late '90s when the economy was growing very fast,” he said.

“It was only after that period that home sales really went to new highs around 6.5 million or so. So it's in a good zone right now.” The rate was 5.29 million in September.

Rupkey disagrees with critics of current Fed Chairman Bernanke.

“I don't know what the damage would be” that Bernanke has caused for the economy, Rupkey said. “He is being credited with keeping us from going into the abyss, making the Great Recession like the Great Depression.”

To be sure, “mistakes were made,” Rupkey said. “One of the biggest mistakes was they let Lehman Brothers go bankrupt. You can't let big firms go bankrupt during a recession. It scares people.”

Rupkey doesn’t expect the recent government shutdown to hurt the economy much.

“Right now, we're only assuming 0.5 percentage-point drag from this shutdown in the fourth quarter. So it's not so bad,” he said. “We'll make up that growth in the first quarter of next year, I expect.”

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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The Federal Reserve has kept the federal-funds rate target at zero to 0.25 percent for almost five years, and Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, finds that worrisome.
Rupkey,danger,Federal Reserve,policy
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2013-12-23
Wednesday, 23 October 2013 09:12 PM
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