Sky-High U.S. Stock Prices Supported by Fed, Not Economy

NEW YORK (TheStreet) -- Stock prices in the United States are flirting again with all time highs and it's the Federal Reserve and its policies that are supporting the boom, not underlying value.

At the meeting of the Open Market Committee of the Fed last week, the Fed decided to leave short-term interest rates where they are and hinted that any possibility for a change might take place no sooner than September or even the end of the year. The reason given for this decision was the slow rate of growth of the economy and the state of the labor market.

Yet, stock market prices are dependent upon the growth of the economy and if the longer run projection for the economy , and the labor market, remains rather dismal, it is hard to believe that future earnings can justify such a high level even though the Fed continues to keep interest rates at such a low level.

The second quarter of 2015 is just about to end and when it does, U.S. economy will have gone through 24 quarters of economic recovery since the end of the Great Recession. For 23 quarters, the compound rate of growth of the economy has been at an annual rate of 2.2%. The numbers from the 24th quarter will not change this result.

Last week, the Federal Reserve released the projections indicating that officials expect the mean growth for the U.S. economy in 2015 to be only 1.9%, even worse that the compound rate already achieved in this recovery.

If you liked this article you might like

Market Is on the Straight and (Very) Narrow

Look Back to Go Forward

Stock Observations; Reviewing Equities: Doug Kass' Views

Even North Korea's Kim Jong Un Can't Stop This Epic S&P 500 Stock Rally

Robots Might Be Biggest Obstacle for Stock Market Bears