Now that US rates are up, the real economic test begins

WASHINGTON   “Bond King” Bill Gross has been warning market players of the dangers of prolonged monetary easing.

     “Central banks are casinos,” the famed money manager, now with Janus Capital, wrote earlier in December. “They print money as if they were manufacturing endless numbers of chips that they’ll never have to redeem.”

     “They may not run out of chips but … the gamblers eventually go home, and their doors close,” he added.

     The Federal Reserve cut short-term interest rates to the zero lower bound in December 2008. Around the same time, it began quantitative easing, a policy of supplying markets with newly created money. This unprecedented monetary response, combined with 4 trillion yuan ($586 billion at the time) in fiscal stimulus courtesy of China, started the global economy on its recovery from an equally unprecedented crisis.

     Exactly seven years to the day, Fed policymakers reversed the move to zero, having ended QE back in October 2014. The excesses of the loose-money era have become worryingly apparent as the U.S. economic recovery has strengthened. Fed Chair Janet Yellen wants to ease up on easing.