Today’s Fed policy is more puzzling to Stan Druckenmiller than at any point in time, he said while speaking at the Delivering Alpha Conference in New York City.  The retired founder of Duquesne Capital Management, who profited handsomely from the financial crisis in 2008, said he believes the US Federal Reserve is putting the economy at great risk through aggressive market intervention.

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Stan Druckenmiller
Stan Druckenmiller picture via Goldman Sachs Research

Stan Druckenmiller fearful over market obsession

In a speech titled “The unfavorable risk-return of the Fed’s current policy,” Druckenmiller said he is “fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy.”

Many hedge fund managers have expressed concern publically and privately that while the stock market has been steadily rising, a potential nightmare collapse involving government debt, big bank derivatives and the stock market high on Fed stimulus might be in the offing.

“I hope we can all agree that once in a century emergency measures are no longer necessary five years into an economic recovery,” Druckenmiller said, according to reports. “There is a heated debate as to what a ‘neutral’ funds rates would be. We should be debating why we haven’t moved more meaningfully toward the neutral funds rate if for no other reason so the Fed will have additional weapons available if the outlook darkens again.”

Stan Druckenmiller questions the need to continue these manipulative policies

While agreeing that “once in a century emergency measures” might have been required in 2008, Stan Druckenmiller questioned the need to continue these manipulative policies five years after the crisis, concerned that this might create a larger market crash.

“To economists and Fed officials who continually cite that we are better off than we would have been without ZIRP for long I ask why is that the relevant policy time horizon? Five years after the crisis and with growing signs of economic normalization it seems to be time to let go of myopic goals,” Druckenmiller goaded. “There is a heated debate as to what a ‘neutral’ funds rates would be. We should be debating why we haven’t moved more meaningfully toward the neutral funds rate if for no other reason so the Fed will have additional weapons available if the outlook darkens again.”

As Stan Druckenmiller was making his comments, across the country in a speech at the University of Southern California in Los Angeles, Dallas Fed President Richard Fisher was making a similar point. “I believe we are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose too long. We did a good job in staving off the deflationary and depression risks that were present in the aftermath of the 2007–09 financial crisis,” Fisher said in prepared remarks. “We now risk falling into the trap of fighting the last war rather than the present challenge. The economy is reaching our desired destination faster than we imagined.”

“Should we overstay our welcome, we risk not only doing damage to the economy but also being viewed as politically pliant,” he said.

Druckenmiller also discussed his mentor George Soros (see that video clip below)