Financier Wilbur Ross, Jr. is not an inflation hawk. In fact, in a Q&A after a speech Wednesday at the Japan Society, Ross said he believes the developed world is dealing with a structural situation that makes inflation concerns a thing of the past. Ross emphasized that deflation was really the more important concern in his mind, according to Tom Lauricella of The wall Street Journal.
Deflation the real issue
In his speech, Ross gave an overview of the economic, investment and monetary landscape in the U.S., Japan and Europe. He said the one common denominator was that central banks are doing everything they can, but the nature of quantitative easing is that “financial markets are much easier to move than economies.”
Wilbur Ross went on to argue that although the private sector has certainly benefited from years of loose monetary policy, governments (which have seen financing costs decline significantly) have actually been the biggest beneficiary of QE.
Central banks are habitually worried about the dangers of inflation, he continued, but given globalization, technology and a huge overhang of government debt, “maybe deflation is what we should be fearing the most and combating the most.”
Wilbur Ross says Fed will increase rates in mid-2015
Wilbur Ross also commented that he believes the Fed will move slowly in winding down its QE efforts, given ongoing concerns about a still-weak jobs market. He said he thinks Yellen and colleagues will start raising interest rates toward the end of the second quarter in 2015.
He says that raising interest rates just makes sense at that point, mainly because the fragility of the labor market is largely structural and isn’t really helped much by low interest rates.
Moreover, Ross argues that raising rates puts the fed back in a more “comfortable position” when it comes to adjusting monetary policy.
“The Fed has better control of short-term rates” than with QE, he explained. Using interest rates as a tool, the Fed “can turn on a dime” if they need to reverse monetary policy.
Wilbur Ross said he doesn’t think that the end of QE will lead to a sustained rise in Treasury yields. Some 45% of debt in developed worlds in yielding less than 1%, he said, so “international investors may just buy more Treasurys” should yields rise, “and offset the end of QE.”