The Federal Reserve is doing more harm to the U.S. economy than good by keeping interest rates artificially low and continuing its "monetary medicine", Peter Boockvar, portfolio manager and equity strategist at Miller Tabak told CNBC.
The Federal Reserve headquarters in Washington, DC.
"Bernanke has put the U.S. economy over the past bunch of years into monetary Fantasyland," Boockvar said on CNBC Asia's "Squawk Box" on Thursday. "When you have rates at zero, when you have an expanded balance sheet of about $3 trillion, the economy is not real."
Boockvar’s comments followed the Fed’s policy statement on Wednesday that it would hold its key interest rate near zero. The Fed also indicated the economy would have to improve before it changes its policy. A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014.
Boockvar said the Fed's policy of keeping rates at zero misallocates capital and does not create a firm foundation for growth because "the cost of money is artificial.”
"It's on monetary medicine, painkillers you can say," he said. "The Fed to me is an impediment, not a boost, and they should just stop what they are doing."
The Fed’s quantitative easingor bond-buying over the past several years has coincided with gains in stock markets, but it has also stoked fears of inflationand worries the Fed won’t be able to exit without causing turmoil in the bond markets and a jump in interest rates.
"At some point, the extraordinary policy (of bond buying) has to be reversed and it's going to be a complete mess when it happens," Boockvar said. "If they (the Fed) think they're going to do it orderly, I have a big problem with that belief."
The Fed showed no sign that it was in a hurry to start on a third bout of bond buying to stimulate the U.S. economy, but Chairman Ben Bernanke said the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.
Longer-dated U.S. Treasurysended lower on Wednesday, though intermediate dated-debt turned slightly positive, after the Fed statement.
New projections released by the central bank showed the most dovish officials no longer want to put off a rate increase until 2016. Seven officials believe it would be appropriate to raise borrowing costs in 2014, up from 5 officials in January, while only 4 wanted to wait longer, down from 6, the Fed said.
Boockvar warned the Fed was creating a bond bubble by keeping rates low for so long.
"The Fed has created a tremendous bond bubble and that comes after the stock market bubble that they created in the early part of the decade, the credit bubble that they created in the middle part of the decade. And now we have an epic bond market bubble," he said.
But Jared Bernstein, Senior Fellow at the Center on Budget and Policies Priorities and a former adviser on economic policy to U.S. Vice-President Joe Biden said the Fed’s policies were necessary given the slack in the economy.
"You wouldn't see that in an economy with stronger underlying demand where inflationary pressures were coming from somewhere," he said. "They're just not there, so the Fed is taking all the necessary steps in order to provide the accommodative monetary stimulus that the economy needs right now."
"I actually might agree with him (Boockvar) if we were talking about a fuller-employment economy with the demand contraction of the great recessionbehind us," Bernstein said.
"But I'm sorry, that's not at all what we are looking at. The real economy is still recovering, that's why the monetary stimulus is so appropriate."
