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Homefederal reserveFed experimented in 'price controls': Grant

Fed experimented in ‘price controls’: Grant

The Federal Reserve's stimulus policies should have gone by a different, more controversial name, the founder and editor of Grant's Interest Rate Observer told CNBC on Wednesday.

Quantitative easing seems more like price control, said Jim Grant, who writes a twice-monthly journal that covers U.S. financial markets. And past attempts at artificially keeping prices low have ended badly, Grant told CNBC.

"It strikes me that the Fed in substance, if not in name, is engaged in a massive experiment in price control," Grant said. "They don't call it that. They fix the funds rate. They manipulate the yield curve. … I said 'experiment in,' but there is no really suspense about how price control turns out. It turns out invariably badly."

(Read more: Markets are waging war against central bankers)

Grant's comments came as Fed chairman Ben Bernanke over presided over his final meeting before handing off control of the central bank to Janet Yellen. The Fed decided Wednesday to continue its taper of monthly asset purchases by another $10 billion. Bernanke's attempts to salvage the country's financial system in 2008 during the worst economic crisis since the Great Depression have been cast in a more favorable light after the U.S stock market saw record gains in 2013.

James Grant, founder and editor of Grant's Interest Rate Observer.Ramin Talaie | Bloomberg| Getty Images

Grant doesn't share that view. Investors, he said, cannot trust market valuations in light of Bernanke's three rounds of quantitative easing. Also, despite record gains in 2013, the recent bull market in stocks was fueled by "excess dollars" from Fed policies, he said.

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"They have their fingers, their thumbs, on the scales of finance," Grant said. "To change the metaphor, we all live to a degree in a valuation hall of mirrors. Who knows what value is when the Fed fixes the determining interest rate to zero."

(Read more: What the Fed will mean for markets this week)

Grant did not limit his criticism of the Fed to its policies. He described the institution as out of touch with market and technological forces that could help drive down prices and costs without intervention from "monetary mandarins."

"It seems to me that anyone who believes themselves or herself to be a capitalist ought to be in favor of the verdict of the marketplace," Grant said. The Fed is "a command and control regime that by the way is holy and anachronistic. The whole idea of social media, the great rush of technology in the 21st century, is collaboration."

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street."


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