Fed relying on biased data, it's not an 'A+' economy, Jim Bianco warns
A veteran market researcher is out with a warning — saying the Federal Reserve is relying too heavily on economic surveys skewed by social media to mold their policies.

According to Bianco Research President James Bianco, most economists mistakenly believe that leading indicators are signaling an "A+" economy that can withstand rising interest rates.

"It's more like a B- economy," he told CNBC's "Trading Nation" on Friday. "It's not this screaming home run that everybody thinks it is based on the survey data."

Bianco said social media is creating the bandwagon effect among survey respondents, a psychological phenomenon characterized by people following the herd.

"The advent of social media is allowing us basically to be inundated with financial news or economic news," he said, adding the bulk of the news about the world's largest economy has been largely favorable.

"When somebody is asked 'what do you think about the economy,'' they are not answering 'what do you think about the economy,' Bianco said. "They are answering 'What have you read about the economy?'"

Bianco fears the Fed will make a policy error based on respondents' answers.

"Economists like at the Fed say 'Wow, look at that data. It's even better than we thought. We have to raise rates even faster,'" he said, adding that the tightening could derail the bull market.

"The 10-Year [yield] could very well be at 3 percent by the end of next year with a 3 percent funds rate," Bianco said. "[That's when] you get an inverted yield curve."

He suggested Fed officials should evolve and begin looking at other types of data. A solution would be favoring Google Trends, according to Bianco. His research suggests it's a far more accurate predictor of how the economy is faring.

"We bare our souls to Google ," Bianco said. "If we lose our job, we type in 'I lost my job.' You can search that stuff and what you find is you're right back to my B- argument."