Economist Peter Warburton to Moneynews: Fed's Tactics Are Confusing Investors

Friday, 26 Apr 2013 07:24 AM

By Dan Weil and David Nelson

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The Federal Reserve’s management of monetary policy, with its multiple goals, makes it difficult for investors to deal with the ramifications, says economist Peter Warburton, director of Economic Perspectives, a U.K. consulting firm.

The Fed plans to keep the federal funds rate target at zero to 0.25 percent until unemployment falls below 6.5 percent. It seeks to increase inflation for the short term and is buying $85 billion of Treasurys and mortgage-backed securities a month to keep long-term interest rates low.

“If we go back only five or six years, the policy was just about interest rates – are they going up, are they going down or are they staying the same,” Warburton tells Newsmax TV in an exclusive interview.

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Editor's Note: A full, unedited version of this interview is available exclusively to Financial Braintrust Alliance subscribers. Visit www.fbtalliance.com for more information and to sign up.

“And everyone understood that and had some sense of what it meant for them and what it meant for stocks. But, with the new policies in many aspects, many different styles operating on different assets, different amounts, is it going to end in a certain time, many different dimensions of the policy.”

And what does that mean for investors?

“I think that it’s very difficult for people to respond consistently and effectively,” Warburton says.

Institutional investors should have a better handle about what’s going on, he says. “What makes the most difference is how individuals alter their behavior according to what they expect to happen.”

There’s a problem of communication from the Fed, he says. Individuals don’t understand or trust that Fed policy will have an effect. “And that’s why it makes the communication of them [policy] and also having stronger leadership in the policy all the more important,” Warburton says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

As for gold’s recent plunge, “I think we should interpret it really in light of the very substantial [monetary] stimulus that remains in place until the end of this year and most probably beyond,” he says.

“We’re still in the relatively early stages of the outworking of the additional stimulus that was offered around last September onward in America, Europe and most recently in Japan. So I think it’s far too soon to say that this policy has failed.”

Gold will likely rebound, Warburton says.

He discussed what he said was an important gold sale using a derivative about two Fridays ago.

“We know that it came through one of the big bullion banks, but what we don’t know is whether it was a distressed customer or whether it was some kind of message being sent to the markets even by an official source,” Warburton says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You


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