The "extreme" monetary policies of central banks worldwide must be reversed before they create another boom-bust cycle in financial markets, says BetaShares.
In an article titled 'Central banks have lost the plot', BetaShares chief economist David Bassanese questioned the wisdom of record-low interest rate settings and quantitative easing programs introduced by developed world central banks.
Such policy measures have not worked, Mr Bassanese said, and given the relative health of the global economy – once low commodity prices and slower global growth are accounted for – they are "simply not needed".
Global growth has been "okay" in developed countries at 1.7 per cent per annum in the five years to the end of 2015, compared with 2.8 per cent per annum in the five years to the end of 2007, he said.
But "around half" of the slowdown in growth can be explained by the reduction in working-age population growth (from 0.9 per cent per annum to 0.2 per cent per annum), Mr Bassanese said.
"In other words, most of the slowdown in growth among developed economies since the financial crisis has reflected weaker potential growth," he said.
With the exception of Europe, unemployment rates in the developed world are below their pre-global financial crisis levels, he said.
Inflation is not as "perilously low" as has been suggested by central bankers, and the argument that a deflationary slump threatens the global economy "does not stand up to scrutiny", according to Mr Bassanese.
"Against the backdrop of reasonable post-financial crisis performance among developed economies in recent years – allowing for declines in both potential growth and commodity prices – it is staggering that key policy interest rates are still near-zero in many regions, and central banks have massively enlarged their balance sheets through aggressive buying of financial assets," he said.
The balance of the Bank of Japan is 90 per cent of the country's GDP, Mr Bassanese said – which is extraordinary considering Japanese core inflation is above average and the economy includes close to full employment.
"The impact of these extreme monetary measures are highly distortionary for the global economy," he said.
"The great worry is that the bubble in bond yields now appears to be slowly but surely flowing through into equity valuations.
"Unless global central banks change course – and correctly recognise the reasons for apparently low global growth and inflation have little to do with deficient demand – they are at risk of creating yet another boom-bust cycle in asset prices within the next year or so," Mr Bassanese said.