Kaminsky's Call: Is the Fed Headed Toward Another Mistake in Policy?
Is it only me or is the Fed headed toward another mistake in policy later this afternoon?
I find it inconceivable that as we approach the two-year anniversary of Lehman Brothers' collapse and the massive bailouts that the Fed is even considering more quantitative easing and a continuation of low rates.
What happened to the idea of actually reversing the Fed's balance sheet by 2010?
My "Call-to-Action" is to take the news of the Fed announcement, should it follow this dovish direction, and not look at it is a positive stimulus to the economy, but as a detrimental decision that will hold negative ramifications and here's why.
The Fed should be raising rates. Low rates can have a contradictory effect as we alluded to on The Strategy Session yesterday. My co-host David Faber astutely pointed out that the older generation that depends on higher rates from their fixed income investments are no longer able to pump money into the economy.
Combined with the 18-34 bracket's aversionto owning stocks (described last week in its own K-Call), the economy suffers rather than thrives as quantitative easing continues.
I wouldn't understand the plan here. Given the outlay we heard from Washington earlier this year, does Chairman Bernanke deserve the star status somehow attributed to him during this muted recovery?
This is not a political column. It is merely a sensible one. Keeping rates this low would be a mistake that further deepens the problems that manifested September 15th almost two years ago. The hole the Fed digs seems bottomless. What can set them free is contrary action. Higher rates would allow any recovery to be real, not fabricated, and truly stimulate the economy.
So be wary of "more good news from the Fed." The short-term relief could prolong long-term debacle. Look for discussion in more detail on The Strategy Session today.
- If Fed Decides to Ease, Will Others Follow?
- Economics Cut Outlook
- SF Fed Warns of Recession
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
Gary Kaminsky does not hold any equity positions.
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