Federal Reserve rate actions have had a coercive effect on the markets and forced investors to move into risk assets, according to Oaktree Capital Group co-founder Howard Marks.“ ‘This has required people to invest because they don’t want to sit around with their cash,” Marks said Tuesday in an interview on Bloomberg TV.
Big names in the world of finance are beginning to call out the Fed and other central banks for their role in ramping up economic inequality and manipulating financial markets — a departure from the praise they received for most of last year.
Why it matters: Wall Street was the only pillar of solid support. Most Americans say they don’t trust the Fed and politicians look to be taking aim at the central bank for overreaching with its unprecedented actions in March.
Driving the news: Mohamed El-Erian, chief economic adviser at $2.8 trillion asset manager Allianz and the former chair of President Obama’s Global Development Council, became the latest heavy hitter from the financial industry to issue a rebuke of central banks’ policies.
What he’s saying: “There is abundant evidence that the beneficial economic implications are low, and the costs include irresponsible risk-taking, higher inequality, distortion of financial markets such as negative interest rates and misallocation of resources,” El-Erian told Switzerland’s The Market.
- “I don’t think central banks quite realize how much irresponsible risk-taking is going on,” he added.
- “In 2010, Ben Bernanke talked about the benefits, costs and risks that come with unconventional policy. He added, the longer you maintain it, the lower the benefits, the higher the costs and risks. This was ten years ago. At that time, Bernanke was thinking of unconventional policy as an economic bridge. Now, it has become a destination.”
Inflation could approach the Fed’s 2% target more quickly than some might expect, said Kansas City Fed President Esther George on Tuesday.
Benchmark 10-year Treasury yields have risen more than 40 basis points since the November election as investors continue to dump bonds amid a cocktail of inflation concerns, potential Fed tapering and increased government borrowing.
Central bankers are ignoring both the risks of massive inflation in asset prices as well as the red signals in essential goods and services.
The Fed is now running a live test:
How high can rates move up until stocks start running into trouble?
My 2 cents:
Not much higher. pic.twitter.com/sgMkxHCm0y
— Otavio (Tavi) Costa (@TaviCosta) January 12, 2021
S&P 500, NASDAQ & Russell 2000 all virtually showing highest price/sales ratio on record pic.twitter.com/3Di9n8lgOD
— Liz Ann Sonders (@LizAnnSonders) January 12, 2021
The Fed won't tell you this outright, but rising yields in this environment are most worrisome, before they scare you to death with some sort of YCC announcement, they will try and control it on the back end.
— 𝕮𝖍𝖎 (@chigrl) January 13, 2021