This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Is the Fed Overreaching?

This column originally appeared on Real Money Pro at 7:59 a.m. EDT on Aug 27.

NEW YORK ( Real Money) --
Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

-- Fed press release (Jan. 25, 2012)

The Fed is now considering more cowbell.

More easing might be telegraphed as soon as Jackson Hole later this week and could be implemented as soon as in the next Fed meeting in September.

According to various members of the Fed, including Chicago Fed President Charles Evans, the U.S. economy is slowing -- in large part, due to the weakening economies in the eurozone and China.

If this is correct, it means that our Fed is responding to an external economic problem with unprecedented internal (domestic) monetary pump priming.

My question is whether it is the role of our Fed to respond to these external problems. If so, to what degree? If monetary policy is indeed responding to non-U.S. economic issues, is our Fed becoming the central banker to the world?

Is this policy a big stretch of the Fed's mandate? (See above quote before answering.)

Finally, aren't external problems better dealt with by those non-U.S. parties experiencing them? If we, in our country, don't like the manner in which other nations are dealing with their financial woes -- well, too bad, it's not our country, not our problem!

At end of day, isn't domestic monetary policy in response to external fiscal and other problems not only doomed to failure but doesn't it also increase mid- to longer-term risks in our economy?

Isn't the U.S. economy meant to have business cycles that trend down as well as up? And why is natural price discovery such a bad thing?

Why, all of the sudden, does it seem to be the case that a recession is not allowed by our monetary authorities? Does "too big to fail" embrace a much broader definition that just banks?

Capitalism should hold rewards and risks. Isn't this the nature of our system?
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs