Carl Icahn: The Fed Has Created a ‘False Market’



Icahn on the Fed

According to Carl Icahn, if the Fed doesn’t raise rates, it will indicate that we’re in a great bubble. It will show that the market (SPY) (VFINX) has been fueled by the Fed’s lower interest rates and that the rally in the market is an artificial bubble created by those low rates. Icahn said the Fed has created a “false market” by not hiking interest rates.

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Why should the interest rate rise?

According to Icahn, interest rates have to rise in the current market scenario. The US labor market (QQQ) (IVV) is showing gradual improvement, and inflation is moving in an upward direction. The US core inflation is at 1.7%.

The unemployment rate is also falling. It was at 5.0% in September 2016. When the unemployment rate in an economy (VOO) is high at nearly 10.0%, aggressive monetary stimulus is required. But in the current environment, when the economy is close to full employment, a gradual rate hike is required.

The probability of a rate hike in the Fed’s December 2016 meeting is increasing. After a dovish stance in the September meeting, the probability of a rate hike in December has been increasing gradually. The expectation of a rate hike is strengthening the movement of the dollar index (UUP). A rate hike should be appropriate when the economy is growing stronger.

In the next part of this series, we’ll look at Icahn’s view on the US presidential election.


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