“Recent comments from Federal Reserve Chair Janet Yellen signal she won’t raise interest rates to fight bubbles in financial markets, and that’s a mistake, asserts Jeremy Grantham, founder of money manager GMO.
“She will not use interest rates to head off or curtail any asset bubbles encouraged by the extremely low rates that might appear,” he writes in the firm’s quarterly commentary.
“History is clear: very low rates absolutely will encourage extreme speculation. But Yellen will, as Greenspan and Bernanke before her, attempt to limit only the damage any breaking bubbles might cause.”
“The evidence against this policy after two of the handful of the most painful burst bubbles in history is impressive,” he writes…..”
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