Tags: Whalen | Fed | QE | regulations

Christopher Whalen: Fed Is Wasting Its QE Ammo

Thursday, 25 Apr 2013 07:48 AM

By John Morgan

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The Federal Reserve is throwing away the benefits of quantitative easing (QE) because government regulations are blunting the impact of the Fed’s ultra-loose monetary policies, according to Christopher Whalen, executive vice president and managing director of Carrington Investment Services.

In fact, the federal reform legislation is discouraging banks from making all but the least risky mortgage loans, he told Yahoo.

“When you look at all the constraints on banks in terms of lending, it's just not being effective in terms of growing jobs, and the key thing is that even with say housing up 10 percent last year, there’s no credit growth,” said Whalen, editor of the weekly Institutional Rate Analyst.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Whalen said government regulation is stifling lending to the point that estimates for new mortgage loan originations have slumped from $1.7 trillion in 2012 to $1.4 trillion in 2013.

The impact of QE is actually beginning to drive deflation in the U.S. economy, Whalen told Yahoo. In addition, QE is discouraging savers and punishing the elderly by keeping interesting rates so low.

“There was a time when QE in terms of the net effects early on was a benefit … but now we're at the point where QE is really starting to hurt savers particularly, and I think that’s a drag on the economy,” Whalen explained

“We’ve put so much friction in the system, to expect a classical recovery is almost unreasonable,” he noted.

Whalen called for the Fed to raise interest rates slightly in order to get assets re-priced to more attractive levels.

The Wall Street Journal predicted bond yields will go up again if pending data supports a growth outlook.

“In this case, the Federal Reserve could start pulling back on buying Treasury bonds before the end of this year, which would remove a main support for bond bulls in holding down bond yields,” The Journal said.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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