SocGen: The Fed Is Raising Rates Too Slowly To Contain Asset Bubbles

Jon Banking

Yesterday, when looking at the divergence between the slowing US economy and the Fed’s insistence on hiking rates, Bank of America’s David Woo asked if there is a different motive behind the Fed’s tightening intentions, namely is the Fed trying to pop the market asset bubble:
“Can it be the case that its hawkishness was prompted by something other than its reading of the economy? For example, is it possible that the Fed has become concerned about the recent surge in the equity market, especially tech stocks that has been feeding off low interest rates and low volatility? According to our equity strategists, the P/E of the tech sector (19x) is currently at its highest levels post-crisis while the EV/Sales ratio is at the highest sinec the Tech Bubble”
Today, in a note which may have been inspired by BofA’s rhetorical question, SocGen’s FX strategist Kit Juckes picks up on what Woo said and notes that “Whether the Fed is raising rates too fast given their inflation mandate or not, they are raising them too slowly to contain asset price inflation.” Which, incidentally is confirmed by the latest Goldman data on financial conditions, which since the Fed’s 2nd rate hike of 2017 have continued to loosen and were “easier” by anotehr 5.4 bps

This post was published at Zero Hedge on Jun 20, 2017.