The International Monetary Fund (IMF) warned Tuesday that stocks are becoming frothy and overheated, citing six years of near zero interest rates in advanced economies. The Federal Reserve noted this past summer that some sectors of the stock market are entering bubble territory.
IMF’s report purported that the longer interest rates stay at around zero then the likelier various financial markets will overheat and offer an abundance of risks to investors and consumers. The IMF refrained from naming specific markets, but many financial experts, including the United States central bank, have identified social media and biotech markets as being in bubbles – you can add bonds to that list as well.
As the IMF discussed potential bubbles, it also reduced its global economic forecast. The IMF projected international growth of 3.3 percent this year, down from its July forecast of 3.4 percent. Next year, the IMF predicts growth of 3.8 percent, down from its initial estimate of four percent.
Of course, the IMF isn’t necessarily a contrarian or libertarian institution, but it’s another sign that more established, mainstream organizations are hopping on the bubble bandwagon, and another entity that believes near-zero interest rates are contributing to the bubbles in the stock market.
Nevertheless, market professionals are dismissing the warnings.
“We don’t share the view of a frothy market,” Frederic Dickson, chief investment strategist of D.A. Davidson & Co., told Bloomberg News. “Where there has been froth in the market, it’s been with some high-flying, small-cap, illiquid stocks that have taken a beating in the last three months.”
Fed Chair Janet Yellen already confirmed that she will not raise interest rates just so it can burst a few bubbles. She has noted that the central bank will maintain the current policy to improve the housing market, assist the labor market and enhance wages. Economists expect the Fed to begin raising rates sometime next year.
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