Tags: Dallara | QE | Japan | US

Charles Dallara Sees No 'Easy and Smooth Exit Out of QE'

Wednesday, 29 May 2013 10:21 AM

By John Morgan

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Ending quantitative easing (QE) for the U.S. and Japanese central banks may be more complicated than starting it, and the feat could be a precarious one, according to Charles Dallara, former managing director of the Institute of International Finance.

Dallara, currently chairman of the Americas at investment management firm Partners Group, told CNBC he was originally a fan of QE, but now thinks the ultra-loose monetary policy may have overstayed its effectiveness.

"We're expecting too much of the Federal Reserve and the Bank of Japan, and I'm growing increasingly concerned that we're not going to find an easy and smooth exit out of QE in the U.S. or for that matter in Japan," he said.

Editor's Note:
Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

Dallara said in his opinion there is a "growing risk of a severe correction in the bond and stock market."

As for Japan, Dallara said he is concerned the Japanese central bank may be going too far with its own easing, widely viewed as a copycat version of U.S. monetary easing. Last month, the Bank of Japan said it would double the supply of money within two years in order to lift the economy toward its 2 percent inflation target.

"I understand that the circumstances in Japan called for bold action, but when I saw the actions they are taking, I couldn't help by feel in some ways this was rolling the dice with the future risk of inflation," he told CNBC.

Some economic experts do not share Dallara's view, however.

In remarks at the World Economic Forum in Jordan, Nobel Prize-winning economist Joseph Stiglitz said it would be premature to end QE now because the recovery is not yet complete, MarketWatch reported.

Gavyn Davies, former head of Goldman Sach's global economics unit, told the Financial Times that neither stocks nor bonds are in a bubble, but that central bank policies have reduced expected returns, according to MarketWatch.

Dallara, who also led the negotiations for private bondholders in the Greek debt restructuring, was also critical of the European Central Bank's performance in trying to support economic growth.

"The European economy remains in deep trouble in fact I think it's in deeper structural difficulty than many realize," he declared.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

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