Money Not Available For Job Producers. Economy Will Stay Sluggish For Years.

Money Manager Kevin Flynn: Fed Is 'Out of Ammo'

Wednesday, 19 Mar 2014 07:37 AM

By Dan Weil

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The economic recovery remains sluggish, but the Federal Reserve isn't in a position to do anything about it, says Kevin Flynn, president of Avalon Asset Management.

"The Fed has very little power to influence events, because it is essentially out of ammo to further ease," he writes in USA Today. "The economy, meanwhile, is still lackluster, despite the central bank's unjustified optimism."

The economy grew 2.4 percent in the fourth quarter.



The Fed has based its tapering of bond purchases on an acceleration of economic growth. "And if that acceleration doesn't happen in the near future?" Flynn asks.

"Don't worry: Wall Street will just shift its predictions for a growth resurgence to the second half of the year."

The only instrument the Fed has left to influence the economy is its guidance on interest rates, Flynn argues. "It can't run about ramping up money printing for every bump in the road," he writes.

"Its bond purchases succeeded in raising asset prices by progressively upping the ante each time. That option isn't available anymore, not when the price tag is the Fed's bloated balance sheet already on its way to $5 trillion."

Meanwhile, David Malpass, president of economic research firm Encima Global, writes inThe Wall Street Journal that the Fed's tapering is "good news for small businesses, jobs and living standards."

While many assume that the Fed is printing money to finance its bond purchases, it actually "borrows heavily from banks, setting arbitrarily low interest rates and diverting credit away from job creators," Malpass explains.



Related Stories:

• Jim Rogers: Fed's Tapering Tactics Will End in Financial 'Disaster'
• Kee: Investors Should Worry as Fed Tapers

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