Fear Cheap Money, Not Double Dip: Morgan Stanley

Fears over a double-dip recession for the global economy are waning, but investors should be more worried about ultra-loose policy from the Federal Reserve, according to Joachim Fels, the co-head of economics at Morgan Stanley.

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"The gobal economy has momentum," Fels told CBNC Thursday. "Global growth is at 5 percent over the last 12 months but real global interest rates remain negative."

"Fears of a double-dip recession are overdone and the risks are now to the upside," he said.

Fels said he believes the Fed needs to end its very loose monetary stance sooner rather than later, as it will push up inflationary pressures across the world, given many emerging nations are importing US monetary policy in a bid keep their exports to America competitive.

"Inflation is rising," he said. "In India we are seeing signs of rising prices and inflation is now the major risk. Policy in many major economies is behind the curve."

"Most investors and central bankers seem to believe that the extreme monetary policy accommodation in the US and Europe is exactly what the doctor ordered," he added.

"We believe that these fears are overdone. We continue to say 'no' to the double dip, we continue to worry more about the longer-term inflationary risks associated with extreme monetary accommodation, and we doubt that governments in the US and in the large euro-area member states have the resolve to tighten fiscal policy drastically," Fels said.

"Monetary policy will face an awkward choice between allowing inflation to run its course and raising interest rates aggressively despite high debt levels," he said.

"Our suspicion is, as we have explained in the past, that they would opt for the former – allow higher inflation for some time in order to help reduce the debt burden."

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