Market Overview

Analyst: Fed Has Created 'Yet Another Asset Bubble'

Share:
Analyst: Fed Has Created 'Yet Another Asset Bubble'

In a recent report, Societe Generale analyst Albert Edwards looked at the Federal Reserve’s track record when it comes to economic forecasts.

While the general consensus in the market seems to be that the Fed will raise interest rates sometime in the middle of 2015, Edwards questions the prudence of such a decision by the Fed.

Asymmetric Behavior

The Bank for International Settlements (BIS) has a track record of pointing out the Federal Reserve’s (and other central banks’) inconsistent policy approach when it comes to booms and busts. Policy makers tend to ease aggressively during economic downturns, but do not do enough to prevent unhealthy asset bubbles from inflating.

Related Link: Societe Generale: Data Suggests 'A Sharp Slowdown In The U.S. Economy Is Imminent'

Bias In Policy

As a result of these asymmetric policies, there has been a downward bias in interest rates over time and an upward bias in debt accumulation. Edwards believes that this behavior has put the U.S. economy in the precarious state it is in today.

“The simple fact is that the Fed has used and abused monetary policy to create yet another asset bubble in another misguided attempt to revive the real economy,” Edwards explains.

'Persistent Overoptimism'

Edwards isn’t comfortable with the faith the general population seems to place in the Federal Reserve’s economic forecasting ability. The Fed’s track record is horrible when it comes to forecasting recessions, but the records of the ECB, OECD, IMF and private sector economists are no better, he added.

A recent study by Ahir and Loungani showed that the private sector and public sector have failed to accurately forecast a single recession since 1989.

The Bottom Line

Clearly, Edwards doesn’t believe that the Fed’s current rosy outlook for the U.S. economy is reliable.

Perhaps this quote from GMO Capital’s James Montier sums up Edward’s opinion best: “It isn’t just growth that economists can’t forecast; it’s also inflation, bond yields, unemployment, stock market price targets and pretty much everything else.”

Latest Ratings for SPX

DateFirmActionFromTo
Nov 2015Initiates Coverage onMarket Perform

View More Analyst Ratings for SPX
View the Latest Analyst Ratings

Posted-In: Janet Yellen Societe GeneraleAnalyst Color Economics Federal Reserve Markets Analyst Ratings Best of Benzinga

 

Related Articles (SPX)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
ELMDDougherty & Co.Initiates Coverage On12.0
MRNSCantor FitzgeraldAssumes7.0
MNRLCapital One FinancialInitiates Coverage On23.0
SONVertical GroupUpgrades
UNPMorgan StanleyMaintains136.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Cotton Higher, Cocoa Higher

Splunk Can Maintain A Strong Growth Dynamic, Says This Analyst