Tags: Salsman | Fed | policy | rate

Strategist Salsman: Fed HQ Now a 'Mere Marbled House of Ill-Repute'

By    |   Friday, 10 April 2015 07:40 AM

Plenty of economists criticize the Federal Reserve for its massive easing program, saying it's raising the risk of asset bubbles without helping the economy much.

But Richard Salsman, president of InterMarket Forecasting, put his criticism in particularly colorful terms.

"Slowly but surely, the U.S. Federal Reserve has institutionalized a similar type of monetary fiscal prostitution" as Japan, he writes in a commentary. "The Eccles Building [the Fed's headquarters] in Washington, D.C., has become a mere marbled house of ill-repute."

Salsman sees no end to the Fed's low interest-rate policy. "The Fed will keep mimicking the low-rate policy launched by the Bank of Japan and keep the fed funds rate below 3 percent indefinitely," he states.

The Fed has kept its fed funds target at a record low of zero to 0.25 percent since December 2008. Many economists expect the central bank to begin raising rates in September.

"For three main reasons the Fed won't normalize its policy rate in our lifetime: 1) it believes that doing so will hurt the economy (a falsehood), 2) it worries that higher interest rates on an ever-rising national debt will increase budgetary interest expense, widen the deficit, and further increase the debt (a truth), and 3) for political reasons it much prefers a policy of financial repression (another truth)."

But a lot of experts also believe the fed funds rate will top out at 2 percent for the next few years, a far cry from the 4 percent norm of recent history before the 2008 financial crisis.

Meanwhile, former Treasury Secretary Larry Summers continues to believe that the Fed should continue its cautious approach to raising rates.

The reason he feels that way: "the greater risks are on the side of [economic] slowdown and stagnation, rather than on the side of overheating and inflation," the Harvard professor tells CNBC.

That risk of a slowdown was reinforced by the March jobs report, which showed that non-farm payrolls rose only 126,000 last month, the weakest showing since December 2013.

Meanwhile, the personal consumption expenditures price index climbed just 0.3 percent in the 12 months through February, far below the Fed's 2 percent target.

There's no reason for the central bank to increase rates before inflation accelerates, Summers notes. "Pre-emptive wars don't work, and pre-emptive wars on inflation would be a big mistake."

Many Fed officials apparently agree with him. Minutes from the Fed's March policy meeting indicate that most of them want to wait until at least September before lifting rates.

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Plenty of economists criticize the Federal Reserve for its massive easing program, saying it's raising the risk of asset bubbles without helping the economy much.
Salsman, Fed, policy, rate
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2015-40-10
Friday, 10 April 2015 07:40 AM
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