Bank of America strategist Mark Cabana warned on Tuesday that the Federal Reserve is likely to raise interest rates too much until the U.S. economy slips into recession, as Fed officials are likely to ignore falling inflation data until they see a further slowdown in the labor market.
“The Fed may have gone too far,” he said.
Before his remarks, the U.S. Bureau of Labor Statistics released the latest consumer price index (CPI) report, saying that the U.S. CPI rose 0.1% month-on-month in August, after market expectations for a 0.1% month-on-month decline; and a year-on-year increase of 8.3% , higher than market expectations of 8.1%,
Cabana said policymakers appeared to be more focused on a hot job market, and waiting for a slowdown in the job market to change hawkish policy could be a mistake. That raises the odds of a hard landing, he noted, predicting that if the Fed tightens too much, it could tip the economy into a recession with an unemployment rate of 5%.
We think the Fed will try to stick to this narrative of higher rates for longer, but they will eventually see softer economic data,” he added, adding that the effects of this summer’s tightening may not take effect until early 2023 It also makes the situation even more complicated.
Fears of excessive tightening are on the rise
In recent days, the “sword” of the Federal Reserve’s excessive tightening is far more than the Bank of America. Jeffrey Gundlach, the chief investment officer of DoubleLine Capital and known as the “New Debt King,” recently expressed similar concerns.
He believes that the Fed may go too far in raising interest rates to fight inflation. Although he thinks the Fed may raise rates by 75 basis points at its next meeting, he himself prefers to raise rates by only 25 basis points, because he worries that the Fed may over-steer the economy and not have enough time to see what happens when a previous rate hike occurs. Effect.
In addition, Cathie Wood, the head of ARK Invest, known as the “Queen of Bull Markets” and “Female Buffett”, also attacked Fed Chairman Powell again last week, saying that such aggressive interest rate hikes are A “mistake”, the current high inflation in the United States is turning into deflation.
According to her, the Fed is too focused on lagging indicators such as employment and core inflation, ignoring the fact that other leading indicators are already showing signs of deflation. “Key inflation indicators such as gold and copper point to deflationary risks. Even oil prices are down more than 35% from their peaks, wiping out most of this year’s gains,” she said.