Commentary

ZIRP Killing Us

The FOMC met last week and once again ZIRP—zero interest rate policy—reigned supreme. The verdict: no change in the Fed’s previous position to “maintain the target range for the federal funds rate at 0 to 1/4 percent… for an extended period.” Thomas Hoenig continued his dissent to this language. My headache continues to persist.

Why is this a problem? Joseph Y. Calhoun, III for Alhambra Investments says it better than I would:

“the Federal Reserve seems oblivious to the damage being done by their zero interest rate policy. The FOMC met again last week and extended the extended period of low interest rates. Gold approaching $1200, oil over $85, copper at $3.35? None of these things matter to Professor Ben and his fellow disciples of the printing press. The only thing that matters is that the banks be allowed to rebuild their balance sheets through the wonders of a steep yield curve. Savers paid less than the rate of inflation? Don’t care. Banks not lending to anyone but the Treasury? Don’t care. Property bubble in Asia? Don’t care. Bank profits almost back to pre-crash levels? Not enough, don’t care. Budget deficit 10% of GDP? Don’t care. Low interest rates helped cause this mess? Don’t care. Election coming up? Oh, wait…”

Read his full economic analysis of the previous quarter (1Q10) here.