Inorganic Froth: ‘Frothy’ Stock Prices Pose Quandary for Powell in Mapping Policy (US Financial Conditions Easiest On Record, Q2 GDP Growth At 13.567%)

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by confoundedinterest17

Since 2008, The Federal Reserve has eased financial conditions tremendously, helping boost prices to record highs. For example, commercial and residential housing prices are much higher than at the peak of the housing bubble in 2005.

The Fed has flooded the economy with epic amounts of money …

Federal Reserve Chairman Jerome Powell has called the risks emanating from “frothy” stock prices and other potential financial imbalances “manageable.” Some current and former central bankers are not so sure.

They worry that the Fed’s rock-bottom interest rates and massive bond buying might lead to asset price bubbles, and excessive risk-taking and leverage that could come back to haunt the economy.

“We’re now at a point where I’m observing excesses and imbalances in financial markets,” Dallas Federal Reserve Bank President Robert Kaplan said on April 30. “I’m very attentive to that, and that’s why I do think at the earliest opportunity I think it will be appropriate for us to start talking about adjusting those purchases.”

Powell, for his part, has shown no inclination to pull back on the Fed’s support for the pandemic-damaged, yet recovering, U.S. economy. But he’s lately sounded a bit more wary about potential dangers to financial stability.

Then we have The Fed’s Vice Chair Richard Clarida:

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The U.S. economy still has a “long way” to go before repairing the harm of the Covid-19 pandemic and it is premature to discuss scaling back central bank asset purchases, said Federal Reserve Vice Chair Richard Clarida.

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“We’re still a long way away from our goals,” Clarida said Wednesday in a television interview on CNBC, adding that policy makers will act on incoming information about the economy rather than projections.

With Q2 GDP growth forecast to be 13.567% and unemployment at 6%?

Nearly 90% of S&P 500 companies beating earnings estimates this quarter (65% is post-1994 average) with a little help from their friends, The Federal Reserve. That is INORGANIC growth using near-zero interest rates and mega leverage.

Can The Fed EVER withdraw its stimulus needle from the economy?

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