The Fed neglected the housing bubble
Bill Gross has been highly critical of the housing bubble and how the Fed neglected it. As a result of his views, the Fed has labeled him as an “odd duck.”
In his investment outlook for February 2016, Gross talks about the “Minsky Moment,” which requires one to rely on common sense as opposed to statistical modeling. Referring to the 2007-2009 subprime crisis as a “fascinating period of corporate and global financial history,” Gross says that the period continues to affect monetary policy decision making by the Fed and other central banks. Most central banks continue to rely on statistical models while deciding the future course of monetary policy measures. According to Gross, the Fed has become “increasingly addled.”
Gross talks about the impotence of monetary policy
According to Gross, “our finance-based global economy is transitioning due to the impotence of monetary policy which has always, and is now increasingly focused on the elixir of low/negative interest rates.”
Central banks have always resorted to the policy rate as the key tool to effect changes in the economy, and their thought process remains fixated on the notion that “higher short rates slow economic growth/temper inflation, and that low (or negative) interest rates do just the opposite.” However, this tool has done little to achieve the desired effect. We see evidence of this policy tool’s failure in the cases of Europe (HEDJ), the US (SPY) (IWM) (QQQ), and Japan (EWJ).