“Star bank analyst Dick Bove of Rafferty Capital Markets says the Federal Reserve’s easing campaign is doing little to boost the economy and is preventing bank earnings from soaring even higher than they already have recently.
“I couldn’t care less what the Fed does,” he tells CNBC. “The Fed has sat there — and I’m a big [Fed Chairman Ben] Bernanke supporter — and they’ve cut interest rates to a level which is crippling bank earnings to some degree and crippling the economy.”
The Fed has targeted the federal funds rate at zero to 0.25 percent.
Bove says that before the Fed embarked on its rate cuts in late 2007, 19.5 percent of Americans’ income came from passive investments. That compares with 12.8 percent now.
“That means they’ve just taken away a staggering amount of money from the elderly population in the United States and put a whole bunch of them on food stamps,” Bove notes. The Fed is making the tradeoff in hopes that it can spark bank lending.
“They didn’t get the bank loans. They just took the money away,” he says. “The second thing they’re doing with this ridiculous interest rate policy is diverting funds to areas of poor return.”
Lenders are interested mostly in loans of less than five years’ duration, unless it’s for junk bonds, because interest rates are so low. “In terms of putting money into long-term projects that are going to generate income, they don’t do it.” But eventually rates go up, “and that’s going to help banks and the economy.”
That’s quite an irony, because historically lower rates have been seen as a boon for banks and the economy, but that was when rates were being cut from much higher levels than what they’re at now…..”
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