- Scott Minerd said the Fed’s anti-inflationary tightening will hit long-term risk investors.
- “They’ll keep pushing until something goes wrong,” the Guggenheim CIO said. “Eventually, it’s going to end in tears.”
- When the Fed wraps up its September meeting on Wednesday, it is expected to raise interest rates again sharply.
Guggenheim’s head of investment Scott Minard warned that the Fed’s anti-inflationary program of aggressive rate hikes and balance sheet reductions will “end in tears” for some investors.
Minerd told CNBC on Monday that there is a good chance the U.S. central bank is over-tightening as it tries to prove its credibility — which could spark a sell-off in stocks.
“They’ll keep pushing until things break,” the Guggenheim CIO said on Twitter. “Looking for change”“I think the breakout might come through, you know, stock prices, but it might come elsewhere — it might come in emerging markets.
“Ultimately, it will end in tears.”
That’s the danger for investors in long-term risk assets, said Minerd, who believes the S&P 500 could fall another 20% by mid-October.
Minerd warned the Fed against raising rates for longer and listed three reasons policymakers should think twice.
“When you look at what policymakers should be focusing on, the money supply is contracting, we’re seeing inflation in the rearview mirror, we’re not looking at inflation going forward,” he said.
“They are very likely to demonstrate the credibility that they have gone too far.”
The Fed begins its two-day September meeting on Tuesday, and most economists believe the central bank will raise interest rates by 75 basis points when it releases its policy decision on Wednesday.But a small group predicts more aggressive rate hikes after August Inflation of 8.3% beat expectations.
Minerd forecast a 75 basis point rate hike this week. But he called on policymakers to raise rates by 100 basis points instead to reduce the time the Fed has to raise rates at its November and December meetings.
“I think 1 percent is better than 0.75 percent,” he said. “There’s more hiking, so they might as well leave it behind.”
Wall Street strategists such as Morgan Stanley’s Andrew Slimmon believe U.S. inflation has peaked, which could allow the Federal Reserve to wind down its rate-hike program in the coming months.
Minerd said investors should restart buying stocks only after the Fed halts its rate-hike cycle, which he expects to happen after the last meeting in 2022.
“Those who talk about bottoming in the stock market, I just want to point out one thing — our market never bottomed out when the Fed was still raising rates,” he said.
“Later in the fourth quarter could be a good time to get into the stock market,” he added.
“My view is that we’re going to do three-quarters at this meeting, half a point at the next meeting, a quarter at the December meeting, and that’s going to be the end of it.”
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