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Albert Edwards accuses Fed of inequality cover up

Siegfried Layda | Getty Images

The U.S. Federal Reserve has engineered a housing bubble to divert attention away from growing inequality in the country, according to controversial Societe General strategist Albert Edwards.

Edwards, who is known for his bearish views, argued that the Fed's surprise decision last week to keep its stimulus program intact would continue to inflate house prices in the U.S.. The idea behind the Fed's bond-buying program is to free up more funds so that banks have more money to lend to home-buyers. With more buyers on the market, and interest rates near record lows, house prices should increase.

Edwards referred to recent comments by Marc Faber, publisher of the Gloom, Boom & Doom Report, who said the Fed's decision to maintain its $85-billion-per-month quantitative easing program meant it was "climbing to a higher diving board."

(Read more: Albert Edwards: Bernanke, Osborne blowing bubbles)

But Edwards added: "I go further. I see growing inequality draining the swimming pool dry. The crunch, when it comes, will be ugly."

There is correlation between the rising U.S. house prices and soaring inequality levels, according to Edwards, who argued the was Fed deliberately pushing up prices to offset the impact of rising inequality. He also said that quantitative easing mainly helps the wealthy, by boosting the value of investors' stocks and bonds and enriching management figures via share buybacks.

"While governments preside over economic policies that make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation," Edwards wrote.

(Read more: Why prospect of Fed taper is looking more distant)

On Tuesday, the S&P/Case Shiller index of 20 cities showed that house prices had risen by 12.4 percent on the year – the strongest rise since February 2006.

However, new research by Berkeley economics professor Emmanuel Saez drew attention to the unevenness of income growth in the U.S. between 2009 and 2012. The average real income per family of the richest 1 percent grew by over 30 percent over the period, according to Saez, whereas the bottom 99 percent's income grew only by 0.4 percent.

Edwards ended his research note with a stark warning for investors.

"Investors should make no mistake," he said. "The anger of the 99 percent will ultimately not be bought off by yet another central bank inspired housing bubble, engineered to pacify them and divert their attention as their real incomes fall and inequality continues to grow."

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

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