The US Federal Reserve appears doomed to repeat its past errors by making a monetary policy "mistake" that will be detrimental to risk assets like equities, said ETF Securities global research head James Butterfill.
Mr Butterfill, who is based in London, told InvestorDaily that the current bull run in equities will continue until the US central bank starts "aggressively" hiking rates.
It does not look as if the Fed is going to start tightening monetary policy soon enough, Mr Butterfill said – which could see the central bank scrambling to catch up in a year's time.
"Historically the Fed has always been quite cautious in its tightening early on, and then realises that it's not enough. And they end up having a small inflation problem – and to control that they hike rates quite aggressively," he said.
"Out of the last nine recessions, seven have been prompted by the Fed hiking rates too aggressively. And I think that's what will probably happen again."
US core inflation recently came in above expectations at 1.68 per cent (compared wtih 1.6 per cent) and the Fed has downgraded its core inflation forecast from 1.7 per cent down to 1.5 per cent – suggesting Janet Yellen is being too cautious, Mr Butterfill said.
"The chances are that they're going to make another policy error in a year's time – and that will be quite detrimental to risk assets," he said.
"And I think that's the point where you will start to see corrections in equity markets and in other asset classes like bonds."
