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Fed policies find critics on Wall Street

Every time Janet L. Yellen, chairwoman of the Federal Reserve, testifies in Congress, she can expect some senators to scoff and representatives to question.

But Washington’s critics pale next to Wall Street’s.

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Since the financial crisis, the Fed has engaged in an aggressive stimulus campaign, which has helped lift stock and bond markets, greatly enriching Wall Street in the process. Even so, a surprisingly large number of investors and bankers remain deeply skeptical — and even angry — about what the Fed is doing.

Many of them believe the central bank’s policies are causing harm — and they are confident that Yellen, who succeeded Ben S. Bernanke as chief this month and is extending his policies, will fail spectacularly.

“I don’t really like the Fed very much,” said Jeffrey E. Gundlach, chief executive of DoubleLine, an investment firm. “I wish the Fed were not manipulating the market the way it is.”

In many ways, the Fed bashing, which remains widespread and undimmed five years after the crisis, is not surprising. Financiers have always weighed in on the economic policy questions of the day. And it is in character for certain top Wall Street figures to believe they are smarter than the government employees who have the actual job of fighting unemployment.

Yet, to hear the Fed’s critics tell it, their antipathy toward the central bank is not motivated by a reflexive opposition to government intervention, but by a desire to end the big booms and busts that have hurt the economy in recent decades.

Some of them have backed liberal causes, and assert that the Fed’s policies are widening the divide between the rich and poor. “It does seem that in spite of all the rhetoric you hear, it is not stopping the polarization of wealth,” Gundlach said.

The Fed’s critics have gotten some of their biggest predictions wrong. The central bank’s stimulus did not create inflation or debase the dollar. The Fed’s supporters on Wall Street credit it with taking bold actions after the crisis that, they say, averted a terrible slump that would have made life far harder for people on lower incomes. The Fed itself has acknowledged that its easy money policies have costs as well as benefits. Fed officials have made it clear that they are on the lookout for new dangers such as excessive speculation in the markets.

“I believe I am a sensible central banker and these are unusual times,” Yellen said in Congress this month.

Still, the detractors say the Fed has learned little, and seems doomed to commit the same mistakes as in the past 30 years.

“My guess is that the Fed will play its usual game till we’re in good old-fashioned bubble territory,” said Jeremy Grantham, cofounder of GMO, an investment firm. He took particular umbrage at Yellen’s recent arguments in Congress for why the stock market is not particularly overvalued. “Either she is ignorant about the markets,” he said, “or on the other hand she is cynical and she is manipulating the market.”

Critics contend that the Fed’s near-zero interest rates and its huge bond-buying programs have acted a lot like steroids, creating an artificial recovery that could wane as the Fed removes the stimulus in the coming months.

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