The Fed needs to stop raising interest rates now, says David Kelly of JPMorgan Asset Management.There's nothing good about a crisis of confidence in banks, but according to David Kelly, the chief global strategist for JPMorgan Asset Management, at least the solutions are simple.
Still, the federal government is guaranteeing all of the deposits at the two banks, which will make runs at other institutions less likely. Credit Suisse, which has seen its shares plunge in the last few days, said it will borrow money from Switzerland's central bank.Kelly says that runs on banks are less likely now, and the path toward firming up markets and investor confidence is a clear one. Step one: don't hike interest rates any more.
"You just pause on interest rates and you say that we're making good progress on inflation," he said."I wish they'd set that up, because that is the truth." "What you need to do in the long run is have a very steady level of interest rates," he said."You've got to stop using the Federal funds rate as the primary tool for regulating demand in the economy because it's not designed for that purpose."
Along the way, he said, those ultra-low rates contributed to the cryptocurrency bubble and to a housing market bubble. It would be extremely damaging to the economy if the bubbles popped quickly, but if the Fed stops contributing to the problem, the results won't be so painful.