Jim Grant’s view on central banks
Jim Grant, the founder and editor of Grant’s Interest Rate Observer, spoke about central banks’ movement in an interview with CNBC. He said, “I think the central banks are busy chipping away at the unwarranted faith in their pretense.” After the Fed decided to leave the interest rate unchanged at its September 2016 meeting, Grant thinks that market participants are gradually losing confidence in central banks.
Fed officials have divided opinions. Some Fed officials such as Stanley Fischer, Esther L. George, and Eric Rosengren are in favor of an interest rate hike. Other Fed officials such as Daniel K. Tarullo and Lael Brainard are more cautious about the interest rate hike. Grant said, “Among the voting members today, we have seven doctors of economics who basically have been taught the same things, who think in the same format, and I think that we are the prisoners of a very dubious set of pseudo-scientific pretensions on the part of the people who manage our monetary affairs.”
Zero-rate interest policy
Grant added that the ZIRP (zero-interest rate policy) created problems for the market. It artificially boosted the asset prices in the economy (VFINX) (SPY) (QQQ). He’s a great critic for the Fed’s ZIRP. Grant said, “Zero rates say there is trouble. They say there is something abnormal. There is something to worry about. This is a state of high anxiety perpetuated by the central bank.”
On September 21, Fed Chair Janet Yellen said, “Our decision does not reflect a lack of confidence in the economy.” It might be better to stay on the cautious side. However, the committee reduced its expectations for inflation and economic growth this year.
As we discussed above, the central banks are losing their credibility to spur growth in the economy. The ZIRP is losing its efficiency. Cheap money in the economy (IWM) (IVV) stopped generating inflation and growth. Investors think that central bankers are manipulating the market.
Read Jim Chanos: Why It’s a ‘Crazy’ Time for the Market to learn more.