Equity markets are now addicted to incentives – and central banks have no exit plan, says Guggenheim’s Scott Minerd
Scott Minerd from Guggenheim.
Lucy Nicholson / Reuters
According to Guggenheim’s Scott Minerd, central banks are now playing roles they were not meant to be and ended up running the markets that depend on their exceptional stimulus.
“For now, we’re just addicted to it,” said Guggenheim’s Global Chief Investment Officer on Monday at the Milken Institute’s Global Conference 2021. “And there is no exit plan for the central banks.”
The Federal Reserve, like central banks around the world, began pumping impetus into the US economy during the coronavirus pandemic. It took measures such as $ 2.3 trillion in loans to aid businesses, households and financial markets, as well as state and local governments whose revenues have suffered during the crisis.
But Minerd said central banks are acting in ways they have never done before.
“The role of the central bank was to provide marginal liquidity in times of crisis and then withdraw it after the economy stabilized and began to recover,” Minerd said. “Central banks now control the markets.”
Minerd previously forecast US stocks could plunge 15% by the end of October based on concerns about COVID-19 and its impact on global economic growth.
Influential figures like Michael Burry, Leon Cooperman and Carl Icahn warn of the consequences of an overstimulation of the economy by the Fed. They argue that such massive central bank money creation will lead to high inflation.
The Fed is likely to officially announce a reduction in its extraordinary support after its November Open Market Committee meeting, provided markets are not in turmoil over the debt ceiling. The actual reduction in bond purchases is expected to occur in December.
Last month the throttling was said to be imminent and “if progress continues broadly as expected, the committee believes that a slowdown in asset purchases may soon be warranted.”
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