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UBS deputy chief U.S. economist Drew Matus on why the Fed needs to worry more about the actions it’s taking.
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Money but it -- -- causing a run up in prices so far it's favorite measure of inflation rose a whopping one point 2% in January from a year ago.
This is the smallest annual increase in nearly two years and well below the Fed's target.
So what has our next guest so worried about the Fed's growing balance sheet giants now a juror mad as deputy deputy chief US economist at UBS.
What are we doing.
You think the Fed isn't very dangerous territory they seem to think everything's -- -- everything's hunky dory until you need to get out.
Right so.
You know it itself coming games until someone gets hurt and so what they're doing SE just keep on expand their balance -- spend about here at some point of house it's gonna shrink.
And so while everyone loves a while the -- and they're buying securities of people -- -- prices are going up.
What happens in the Fed Vanessa turnaround and consider selling those securities are letting those assets roll off and away.
That takes a little bit too long and maybe inflation's beginning to pick up but I.
Hear you but what about the notion that -- they don't have to stop.
Keep print money making a bigger bigger bigger and what's you know what's the end game at the end of the day we just keep the market got one.
Well that's what has -- concerns that the doesn't seem to be good end game and if you look at every central -- on the world you're looking QE.
You look at banks have gone in and started qualitative easing these purchases of assets.
No one's ever stopped right so once you start you don't stop it's it's it's not a really.
You know good thing for this it's something the Fed should consider -- -- no one else has been able to get out why -- why are we so confident we can get out.
I guess the question now that I'm sure a lot of traders -- better -- -- some serious money in this market are asking why do we have to get out.
Love actually have to get out because you have an amount of goods and services in the economy -- -- GDP right -- an economist who is -- to talk about and you have -- amount of money in the economy and -- to -- -- -- -- And if you have triple the money supply and you know GDP stays the same there's a way that that fixes itself and news called inflation as a safe bet so will.
What have we seen inflation.
Well you know we haven't seen a lot of inflation.
-- what we call an absolute basis rights of the overall levels pretty low.
The problem is those if you asked any economists out there what inflation -- we should have worked with an unemployment rate of 8%.
None of them would -- as -- as it is today so yes we haven't seen a lot of inflation but we see more inflation than there should be.
I certainly seen it and -- for what it's worth.
We -- FOMC meeting coming up march 19 and twentieth what do you expect to hear same same -- same old same old same old I mean Bernanke -- -- -- his testimony.
And he basically said that all the people were -- about what I'm worried about aren't really thinking it through.
And that he sought it through we shall distrust him and the market seems to have bought that for now.
And you know with any luck hopefully everyone will continue to buy and he'll be the first guy who gets us out of -- -- in the right way so.
Presuming he does because there's no real history -- for an exit plan we have not know basic comparison here.
Does the market pull back I mean you know -- traders start to say hey we don't have the backstop anymore and come out of this market.
Well I mean that's a problem is we don't know how people are gonna rewrite what happens if the Fed tries to get out.
And it doesn't go as smoothly as they're hoping right and how the markets react how does -- -- -- -- that when the Fed says oh don't worry we have an exit strategy.
But -- when he tried executed doesn't really go off that smoothly I suspect that's when markets get a little rough.
And put it mildly but for now principles still there so yeah keep the party young is always a punch -- there -- from the -- -- -- pulled away that you have to think about things.
Yes who's gonna who's got your keys fresh -- leave your -- Petty -- -- house can I driver -- called cap that's on all the tough questions start.
We -- didn't add up Matt Jay and Madison UBS thanks -- thank you.
-- that moment.
