Jim Grant of Grant’s Interest Rate Observer and author and economist Judy Shelton discuss the Fed’s decision to not raise interest rates on CNBC’s “Closing Bell.”
Jim Grant: Fed Has Changed Course For Reasons That Are Not Apparent
Q4 hedge fund letters, conference, scoops etc
Transcript
Deals out to almost 10 years are at or near the federal funds rate several hundred. Today's 240. And that is higher than your yield higher than the five year old and the 10 year yield I think is only 15 basis points over the country. What does that tell you. Well you know a flattish yield curve is meant to be an augury of something not good. And suddenly the market is taking and expectations of a Fed rate cut. I think the 50 percent chance of that by the end of the year. So you know the Fed is meant to be patient. It. Contends his patience. But there seems to be a certain jumpiness about his patience. The Fed has changed course in the face of a change in inflation as they measure it and see in December it was one point nine. And today that number is one point eight. And that is supposed to be the source I listen to the previous panel of. The chairman's malaise or uneasiness. I mean is that is it that scarcely measurable. Well financial conditions tightened over the last few months and global growth over the past six weeks or 10 weeks the financial conditions have certainly loosened. It's a mystery to me what happens is that the Fed getting too dovish. We'll know more in ten years whether it's too dovish but certainly the Fed has changed course for reasons that are not altogether apparent from its own economic projections. They hardly changed Judy will the president be happy with the change in course the. Well. I think on the basis that Chairman Powell emphasized that this economy is in a good place.
And it now appears that the Fed has adopted the creative do no harm. I think everyone should be happy with that. We've seen the great increase in productivity. And that's just the best outcome we could be seen. I think it's one point eight from last year. The prior four quarters compared to mostly flat for years before that. What you would hate to see is a hawkish Fed. That would think about raising interest rates. The scary thing to me today is the way we raise rates which is by basically paying banks on their reserves a higher rate of return to keep those reserves idle. The last thing you want to do is talk banks out of making loans to entrepreneurs and small business and the people who create the jobs. It's the new pro business environment with businesses feeling they can afford to invest in capital equipment and hire workers. That is giving you that productivity gain. And it's the increase in real economic growth that is is really what we should be most focused on and we don't want to do anything to undercut that.
