The Federal Reserve is in the midst of winding down its third round of quantitative easing (QE3), and economist and financial author James Rickards says that doesn’t bode well for the economy and financial markets.
After the Fed’s prior two quantitative easing operations, both the economy and the stock market suffered, he notes. Rickards is the author of “The Death of Money: The Coming Collapse of the International Monetary System.”
“It’s happening again, but in slow motion, because the QE3 taper was gradual and from a higher level,” he tells CNBC. “When this third taper is done in November, the weakness will become apparent.”
The economy grew 4.2 percent in the second quarter, after contracting 2.1 percent in the first quarter. The S&P 500 index hit a record high Thursday.
The Fed began tapering QE3 late last year and has reduced its monthly bond buying to $25 billion from $85 billion at its peak.
Meanwhile, David Malpass, president of Encima Global Research firm, criticizes the Fed’s decision to maintain a huge balance sheet for years and to refrain from an interest-rate hike until at least next year.
“Far from being neutral or stimulative, these policies have caused huge distortions in financial markets, contributing to slow growth and falling median incomes,” Malpass writes in The Wall Street Journal.
“Given the tendency of government programs to expand and become permanent, the risk now is that the Fed’s large pool of assets and liabilities evolves into a semi-permanent government-controlled investment fund, a U.S. version of the sovereign-wealth funds created by other governments.”