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Irwin Kellner
April 26, 2011, 12:01 a.m. EDT
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By Irwin Kellner, MarketWatch
PORT WASHINGTON, N.Y. (MarketWatch) "” The Federal Reserve's extremely easy monetary policy may have helped some but it has hurt others.
Nowadays, the financial markets' latest obsession deals with the possibility that Fed may soon change its policy from ultra easy to just plain easy. Naturally, they are trying to scope out who will be helped or hurt as a result.
In my view, regardless of whether the current phase of the central bank's policy (known as quantitative easing) ends in June as scheduled, you may anticipate that Fed policy will still be a long way from returning to normal "” much less tightening.
That being the case, the effects of its current policy will linger for some time to come. Those who have been helped will continue to enjoy the Fed's support, while those who have suffered can only look forward to more of the same.
On the positive side, the threat of deflation will remain a back-burner issue. This is due to the fact that the central bank has provided the wherewithal for prices to rise by dint of flooding the financial system with gobs of cheap cash.
Because this has forced interest rates down to near-record lows, stocks and other assets will continue to benefit from investors' search for better returns than those available on Treasurys. For their part, U.S. exporters can look forward to the lift they have already received from the lower value of the dollar.
For the Federal Reserve, holding its first-ever public press conference after a policy meeting requires working out a lot of small details on issues like who gets in and how Fed chairman Ben Bernanke should kick things off.
That's the good news. The bad news is that this monetary largesse has passed over some while actually hurting others.
Cheaper borrowing costs, another result of lower interest rates, were supposed to induce more borrowing by business, presumably to buy capital goods and hire employees. But commercial and industrial loans continue to fall, according to data provided by the Federal Reserve Bank of St. Louis, and unemployment remains high.
Meanwhile, household buying power has been dented by the sharp rise in prices to which I referred above. Retail prices in total are nearly 3% above where they were a year ago, led by soaring food and energy tags "” items that people buy and use every day. Since the end of 2010, consumer prices have actually risen twice as fast.
Prices are outstripping wages. Average hourly earnings for all employees on private nonfarm payrolls were unchanged in March and less than 2% higher than they were a year earlier.
Those who managed to eke out some savings have been rewarded by near-zero interest rates "” another byproduct of the Fed's extraordinarily easy monetary policy. While young families have a long-enough time horizon to invest in the stock market, seniors are usually best advised to stick to relatively safe, fixed-income investments.
As you might imagine, seniors are the biggest losers from the Fed's easy-money policy. Their fixed incomes are constantly losing buying power while their savings accounts earn virtually nothing.
Irwin Kellner is MarketWatch's chief economist.
Irwin Kellner, MarketWatch's chief economist since 1998, writes a weekly column on the economy and the financial markets. He has been a leading economist for more than 40 years and previously served as chief economist for North Fork Bank, Chase, Chemical and Manufacturers Hanover. Widely quoted by the media in the U.S. and abroad, Kellner regularly addresses groups of business people and community leaders and appears regularly on Cablevision's News 12 Long Island.
After all the talk that only profitable or sizable companies shall go public, Zillow's S1 filing flies in the face of those promises about IPO candidates.
6:55 p.m. April 25, 2011
"Irwin Kellner: The biggest loser from Fed's easing http://bit.ly/i7fDmf" 11:03 p.m. EDT, April 25, 2011 from MktwKellner
"Irwin Kellner: Headwinds slowing the economy http://bit.ly/h3JeHh" 11:12 p.m. EDT, April 18, 2011 from MktwKellner
"Irwin Kellner: Cutting budget deficit is harder than it looks http://bit.ly/h4NQiy" 12:19 a.m. EDT, April 12, 2011 from MktwKellner
"Irwin Kellner: Don't believe everything you hear http://bit.ly/h9D5GE" 11:48 p.m. EDT, April 4, 2011 from MktwKellner
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