The 2008-09 financial crisis is now an ancient relic of history, right? Well maybe not. That's what
everybody thought in 1937 about the 1929 meltdown.
Back in '37, the Federal Reserve raised interest rates, thinking the economy's weakness was over, and it didn't turn out so well. The economy and stock market went back into the tank.
As for now, "many policymakers and market observers assert that the risk of the Fed raising rates too early exceeds that of moving too late," Michael Arone, chief investment strategist at State Street Global Advisors, wrote in a commentary obtained by CNBC.
"This is the specter of 1937, when the Fed raised rates prematurely and exacerbated the Great Depression."
To be sure, he sees things differently. "Most investors assume the prevailing lower-for-longer consensus is bullish for both equities and bonds," Arone said. But he think "a tardy Fed has a good chance of proving bearish for bonds and, longer term, for equities as well."
The S&P 500 stock index stands only about 2 percent from its record high.
Conventional wisdom has it that the Federal Reserve's massive easing program laid the foundation for the stock market's surge that has seen the S&P 500 triple over the past six years.
Not so, says John Tamny, political economy editor at Forbes.
To give the Fed credit for the rally, "we’d have to believe that central bankers have suddenly figured out how to engineer bull markets," he writes.
The Fed has kept short-term interest rates at a record low since December 2008 and expanded its balance sheet to $4.5 trillion through quantitative easing.
"Not asked enough is why the Fed’s [stimulus] would excite investors in the first place," Tamny says. "Quantitative easing has logically been anti-market for it revealing unfortunate overreach whereby the Fed acts as capital allocator over information-pregnant markets themselves."
So what is responsible for stocks' ascent?
"The gridlock that’s prevailed in Washington since early 2012 seems a more likely driver of optimism for it somewhat removing government as a risk to future returns," Tamny maintains.
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