FED POLICY BACKFIRES: NEXT STOP QE4.
By refusing to budge on interest rates this week, our Federal Reserve just communicated to the world that it has -- after nearly seven years -- reached a state of paralysis.
The Fed missed an opportunity to bring normalcy back into markets and now, must confront the law of unintended consequences.
Instead of growing the economy, the Fed is contributing to what is referred to as "disinflation" in the real economy -- while simultaneously creating inflation of asset prices like stocks, bonds and real estate.
In the real economy, workers are struggling to find good paying jobs. Wages aren't budging (despite the so-called great 5.1 percent unemployment rate) and prices for goods and services are declining.
Yet, the market has reached all time highs under Janet Yellen's Federal Reserve tenure, bond prices are soaring, and luxury real estate is seeing record sales.
As such, it's clear the Fed, while trying to improve the economy through easy money, has inadvertently contributed to the so-called "income inequality" problem. Its policies are benefitting the wealthy by driving asset prices higher, while failing to improve the lives of most Americans.
It's time the Fed recognize the ineffectiveness of its policies. Zero interest rates are now growing increasingly dangerous, causing investors to ignore the normal push-pull, ying-yang of the market place. Investors are being forced further and further out on the risk curve in search of yield. The result could be one big asset bubble, that's now getting ready to burst.
The recent volatility of the marketplace suggests investors have begun to realize this. The Fed's lack of movement on Thursday helped crystalize it; the Fed is powerless. It's out of bullets. With the world economy that's on the verge of a global recession, the Fed has no power left. QE 4 here we come.
Photo: Federal Reserve Board Chairwoman Janet Yellen answers questions at a news conference following a Federal Open Market Committee meeting September 17, 2015 in Washington, DC. (Photo by Win McNamee/Getty Images)
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