While Wall Street cheered the continuation of easy money with the Federal Reserve’s decision to keep its main policy rate near zero, currency funds manager Axel Merk argues the U.S. central bank is exceeding the role it should be playing — to the economy’s peril.
Markets rose Wednesday, despite concern about weak inflation inducing Fed policymakers to unanimously vote to postpone a long-anticipated tightening of rates.
But to the Merk Funds founder and veteran Fed watcher, there’s something wrong with the picture of the U.S. central bank “still arguing whether we can afford interest rates above 0%” seven years after the global financial crisis.
In his latest commentary, which appears occasionally on his website, Merk critiques an extraordinary policy he says benefits those with assets but not ordinary working people; benefits governments seeking to finance deficits but to their publics’ long-term detriment; and inflates asset bubbles but at the cost of distorting fundamentals-based price signals, thus obscuring what investments are genuinely worthwhile.
More ominously, Merk warns that superlow rates endanger the very fabric of society.
“It’s more than money that is at stake,” he writes. “The Great Depression ended in World War II — we don’t think that’s a coincidence. When central banks help to prop up systems that are unsustainable, populist leaders come to power. Because if there’s one thing that hasn’t changed in history it is that policymakers rarely ever blame themselves for the challenges they are facing.”