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Noted bear David Rosenberg at Gluskin Sheff + Associates says the U.S. Federal Reserve is misguided in its belief that its latest round of bond-buying will spur the U.S. economy out of its current funk.
"It's one of the laws of motion from Newton that every action has an equal and opposite reaction," he tells BNN.
Rosenberg says although the Fed tried to increase risk-taking behaviour and create a wealth effect to boost the economy, they also ended up pushing commodity prices higher. The same was true after the last two rounds of bond-buying.
Dubbed Quantitative Easing by investors, the U.S. central bank buys bonds in order to inject cash – and hopefully stimulate the economy – into the market.
Rosenberg says the drawback of higher commodity prices from greater cash in the financial system mitigates the impact of QE by acting as a drag on consumer spending.
"It just so happens that part of that commodity price complex is food and energy, and although investors may drive those prices up along with other risk assets for regular households that's what we consume in our family budget," he says. "When you're talking about 25 to 30 percent of what you spend is food and energy and those prices end up going up you crimp spending in other parts of the economy."