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The Federal Reserve has abandoned monetary policy normalization. Instead of guarding against the risks of fueling asset price bubbles, the central bank has chosen to resort to initiatives that were adopted in the aftermath of the global financial crisis. While the End the Fed crowd had warned about the Eccles Building swaying markets into bubble territory, the central bankers, pundits, and prominent investors dismissed this as conspiratorial talk that only those crazy folks from the Mises Institute dabbled in and obsessed over. Today, however, both the Fed and the pillars of Wall Street are conceding that easing is indeed affecting asset prices. It is incredible because the go-to talking point for years had been that printing money and cutting interest rates do not blow market-wide bubbles.
What happened? Did the Swamp suddenly pass legislation that bans lying in the U.S. or something?
Dallas - Fed - Bank - President - Robert
Dallas Fed Bank President Robert Kaplan sat down for an interview with Bloomberg News, and it was a compelling interview because it was a rare moment of candidness by a member of a clandestine organization. Essentially, Kaplan conceded that low interest rates and the expansion of its balance sheets are contributing to the dramatic surge in asset prices.
“My own view is it’s having some effect on risk assets,” Kaplan said. “It’s a derivative of QE when we buy bills and we inject more liquidity; it affects risk assets. This is why I say growth in the balance sheet is not free. There is a cost to it.”
Kaplan - Federal - Open - Market - Committee
Kaplan, who participates in the Federal Open Market Committee (FOMC), is urging the central bank to be cautious about expanding the $4.05 trillion balance sheet even further. Despite the Eccles Building only recently tapering the taper and triggering a massive increase in the balance sheet, Kaplan believes it is “very important that we come...
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