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The Fed’s Actions Are Counterproductive: Jim Grant

Daily Ticker

As expected, the Federal Reserve announced Wednesday it will continue its $85 billion monthly bond-buying stimulus program until the economy improves.

The central bank also pledged to keep interest rates near zero until the national unemployment rate falls to at least 6.5%, and as long as inflation stays in line with its 2% target.

In the accompanying video, Jim Grant, founder of Grant’s Interest Rate Observer, joins The Daily Ticker to discuss the Fed's first FOMC statement of 2013 and its efforts to support full employment and price stability.

"I think the Fed's actions are counterproductive," he says. The Fed's intentions to jump start growth are actually working against the economy, Grant argues.

"If it were as easy as printing money or creating credit to levitate an economy or to reactivate business activity the world would have been richer many generations ago," he says.

Ahead of the Fed announcement the Commerce Department reported 2012 fourth quarter GDP fell for the first time since 2009. The 0.1% contraction is indicative of the "low-level virus" attacking the domestic economy, says Grant.

Related: U.S. Still Suffering Depression Conditions: Paul Krugman

"It is not a characteristic American economy," he explains. "What we are missing is a dynamism, the entrepreneurial zest and vigor that has characterized this country."

But as The Daily Ticker's Lauren Lyster points out in the video, the housing and labor markets are recovering. Grant says the Fed can take "no credit" for the improvement.

In fact, Grant believes the Fed's perpetual low-interest rate policy will lead to the next big economic crisis in this country: the bursting of the bond bubble.

Michael Pento, president of Pento Portfolio Strategies, told The Daily Ticker on Wednesday that the Fed's bond-buying will eventually lead to higher interest rates and inflation.

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