Former Reagan economic adviser David Stockman urges President-elect Donald Trump to remove Federal Reserve Chairman Janet Yellen as soon as possible because she orchestrated the “massive bubble” he sees in the record-setting stock-market rally.
“She out to be put out to pasture as soon as possible,” he told Fox Business Network.
"Ask for resignation on January 20th because unless this bubble is lanced, there is a huge bubble in these markets, the Trump administration is never going to come out the other side,” said Stockman, who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.
"And he would be well advised to clean house, if you want to drain the swamp, the place to start is in the (Federal Reserve) building because where this entire false economy, this big fat, ugly bubble that Trump talked about during the campaign actually originates,” he said.
He said Yellen has “no clue that this is a massive bubble. S&P is trading at 25 times earnings. Look at what happened to the Russell since the election, up 20%. Up 40% since last February. It's trading by the way at 247 times the actual earnings of the Russell 2000. So we have a Fed that has created massive distortions, total mispricing in bonds and stock markets. Very unstable bubble everywhere,” he said.
To be sure, Wall Street marched even higher on Thursday, helped by a rise in bank stocks, a day after the Fed increased interest rates for the first time this year and signaled a faster pace of hikes in 2017. Since the Nov. 8 U.S. presidential election, stocks have rallied on bets that Trump's expected business friendly policies will stimulate the economy.
“I'm not complaining about Yellen tightening. It is ludicrous we got 96 months before we got a tiny baby step upward. What I'm talking about is a Fed that is interfering, intruding so heavily in the financial markets they don't work anymore," he said.
The Fed sees three rate hikes next year instead of the two foreseen as of September, partly as a result of the changes anticipated under Trump. Yellen also cited an improving labor market and evidence of faster inflation for its 2017 rate outlook.
The central bank's decision to raise rates comes as Trump, who will be sworn in next month, is expected to cut taxes and boost spending on infrastructure, Reuters reported.
"While there still remains a cloud of uncertainty over how economic policy may change under Trump's presidency, the same rising optimism towards Trump boosting U.S. growth through tax cuts and infrastructure spending may have played a key part in the changes to the Fed's projections," said Lukman Otunuga, a research analyst with FXTM.
But Stockman has seen enough and thinks it far past time to remove Yellen.
"Trump should take a lead from Ronald Reagan's notebook. He said, let's get it over with. Lance the boil, stop inflation. Do what you have to,” he said.
“If we don't get this market back to some kind of rational basis, if we don't clean house at the fed and get people in there that will give capitalism a chance to work and bond market priced on its own and money market finding real level, the whole hope that Trump has given to the country will be lost.”
Stockman isn't the only financial guru to warn about the market.
Carl Icahn thinks the stock market’s celebration since Donald Trump’s presidential victory may have “gone too far” as the Dow Jones Industrial Average nears the 20,000 milestone.
"It's gone too far," Icahn recently told Poppy Harlow on CNN. I personally think it's a little overdone," Icahn said about the stock market rally.
(Newsmax wire services contributed to this report).
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