Fed Painted ‘in a Box’ as Markets Demand QE3: Kashkari
Ebullient stock markets are increasingly pricing in the possibility that the Federal Reserve will soon unveil another round of monetary stimulus, Pimco Managing Director Neel Kashkari told CNBC Wednesday.
“The Fed is really in a box right now,” said Kashkari, who was an architect of the Troubled Asset Relief Program that bailed out major banks during the 2008 financial crisis. Inflation expectations and stocks are at levels that appear to be assuming imminent Fed action, he told CNBC's “Squawk Box.”
“Those indicators have already priced in … that the Fed should act,” Kashkari said. As a result, the fund manager suggested Fed Chairman Ben Bernanke’s “hands appear to be tied” ahead of a closely watched speech on the economic outlook later this month in Jackson Hole, Wyo.
“If he doesn’t deliver in Jackson Hole … you’ll see these risk markets react and fall back,” Kashkari said. Investors clamoring for more quantitative easing (explain this) “suggests there’s downside risk from here if the Fed doesn’t move,” he added.
Kashkari echoed remarks made last week by Pimco bond guru Bill Gross, who said investors would be hard-pressed to earn the traditional return on stocks they have in past decades. However, he suggested there was value in three stocks the market has overlooked: KIA Motors , Baxter Healthcare and Viewpoint Financial.
Disclosure: Kashkari owns stock in Viewpoint Financial.