Starwood's Sternlicht warns of new asset bubble

NEW YORK Dec 11 (Reuters) - The Federal Reserve should start raising its target interest rate now to stop an asset bubble from forming as investors reach for more yield, a well-known real estate investor said on Friday.

The need for return has investors buying corporate and real estate assets without doing the proper due diligence, Barry Sternlicht, chief executive of private equity firm Starwood Capital Group, said at a real estate forum.

"There's a tremendous global search for yield, and it's driving markets probably way ahead of the fundamentals," Sternlicht said at the forum sponsored by the Wharton School at the University of Pennsylvania.

Risk-taking today is reminiscent of a period earlier this decade, when low interest rates prompted investors to move into assets that imploded as the credit crisis unfolded, he said. Starwood has been purchasing some land for housing and distressed assets, but Sternlicht stressed he is "not bullish" on the United States.

What's more, the "trillion dollars of steriods" of government money running through the system means inflation will soar to levels not seen since the 1970s, he said.

"If this doesn't stop, you are going to see such massive inflation in four years," he said. "And they are not going to be able to turn it off."

(Reporting by Al Yoon; editing by Jeffrey Benkoe)