Martin Feldstein Warns About Stock Market

 Martin Feldstein

My favorite Keynesian economist, Martin Feldstein, writes in the Wall Street Journal:

Year after year, the stock market has roared ahead, driven by the Federal Reserve’s excessively easy monetary policy. The result is a fragile financial situation—and potentially a steep drop somewhere up ahead...In short, an excessively easy monetary policy has led to overvalued equities and a precarious financial situation. The Fed should have started raising the fed-funds rate several years ago, reducing the incentive for investors to reach for yield and drive up equity prices. Since it didn’t do so, the Fed now faces the difficult challenge of trying simultaneously to contain inflation and reduce the excess asset prices—without pushing the economy into recession.

As I have been warning in the EPJ Daily Alert, the stock market looks very vulnerable to me right now. It is largely a momentum driven stock market with little help from money supply growth.

Money supply is growing, but in a sluggish manner. There is still no reason to think a recession is iimminent something Austrian-lites have been expecting since the December 2016 interest rate hike but a break in the stock market could occur at anytime.

 -RW