Fed is chasing wrong targets, following wrong gauges, Stephen Roach says

The US Federal Reserve wants you to believe the economic recovery Stateside is more than it really is.

That is why China is so important right now for the US central bank and why unemployment is a “misleading gauge”, Stephen Roach, a senior fellow at Yale University, said on Thursday in an interview with Bloomberg TV.

Unemployment market is not as tight as it seems and not enough to generate inflation risks.

The US Fed is sticking to an antiquated policy framework, targeting inflation in an inflation-less world, the economist added.

He was speaking ahead of Chinese premier Xi Jinping’s visit to Washington DC.

“There is no monetary policy in the US right now except to keep interest rates at zero and balance sheets large and other central banks are going along for the ride.”

Commenting on the current situation, he said markets were now back to the levels reached before the launch of the Shanghai-Hong Kong Stock Connect, in November 2014.

When queried by one of his hosts about whether markets had reached a ‘bottom’ he answered: “… it’s “hard to catch a falling knife…”

Nonetheless, China is not "crash-landing as some of the people on this show would like you to believe. It is transforming.. and commodity exporting countries are in big trouble".

"The Federal Reserve should have raised rates. the emergency is over", Roach concluded.