It will be 'virtually impossible' for Fed to achieve above 2% inflation without creating stock bubble, Guggenheim's Minerd says
- Scott Minerd, Guggenheim global CIO told Bloomberg on Wednesday it is “virtually impossible” for the Fed to achieve inflation above 2% without creating a bubble in asset prices.
- “The reality is that the inefficiencies that are building up in the system because of all the malinvestment are going to prove more and more of a challenge,” he said.
Scott Minerd – global chief investment officer for Guggenheim Investments, where he oversees $270 billion – told Bloomberg on Wednesday it will be “virtually impossible” for the Federal Reserve to achieve inflation above its 2% target without creating a bubble in asset prices along the way.
His comments came shortly after the central bank pledged to keep interest rates lower for longer, which assumes it can achieve inflation above its 2% target.
“The bubble in asset prices is going to continue as the Fed remains extremely accommodative,” Minerd said. “The reality is that the inefficiencies that are building up in the system because of all the malinvestments are going to prove more and more of a challenge.”
We won’t have to face this challenge in the next two years, but by 2023, the Fed will be facing “some interesting trade-offs,” he said.
Minerd added that while there may be a setback in stocks over the course of the next month, investors should expect for risk assets to go up in price. Inflation could also hit harder than some may be anticipating.
“The market may ultimately be surprised to find that inflation could come back faster and harder than anyone’s expecting,” he said.
The rise in inflation may be due to the number of “zombie companies” in the market, according to Minerd. Typically these companies that should fail but don’t tend to become very unproductive.
“If we suddenly see it takes more labor input or it takes additional demands on resources, you could start to see pressure there,” he said.
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