The Federal Open Market Committee (FOMC) is holding meetings this week and it’s likely that the Federal Reserve will announce further tapering of its quantitative easing program, a monthly bond-buying program that is meant to stimulate the economy and the markets with artificially low interest rates that spur borrowing, lending and consumption.
Marc Faber, a legendary contrarian investor and publisher of the Gloom, Boom & Doom Report, told CNBC on Tuesday that he isn’t too pleased with the Fed’s QE tapering because the United States central bank hones in on accommodative policies, like its zero interest rate policy (ZIRP) and its $4.3 trillion balance sheet.
According to Faber, the Federal Reserve’s tactics have been “a catastrophe” for the U.S. economy.
“What the Fed has done is to lift asset prices, and the cost of living. In the meantime, the cost of living increases are higher than the wage increases. The typical American household income is going down in real term,” averred Faber, who believes Fed policy has heightened income inequality, a topic that has dominated U.S. politics since the economic collapse.
“The Fed is boosting asset prices. It leads to less affordability, people can’t buy their homes anymore in the lower income group. The more they print, the more inequality there is, the weaker the economy will become.”
He added that the Fed will print more money moving forward and then inflation will rear its head and diminish the standard of living for the average American household.
With that being said, how can an investor adapt to the situation? Faber argued that it’s difficult because the markets are manipulated very much through artificial stimulus and destructive Fed policy. He also noted that “nothing is particularly cheap,” but did cite gold as being the better option, especially when compared to equities.
Price inflation has already begun to inflict the U.S. economy. On Tuesday, the Department of Labor released its statistics and highlighted how consumer prices rose 0.4 percent in the month of May. What many paid attention to was the fact that food prices were up 0.5 percent, while energy prices also grew by 0.9 percent.