- Wells Fargo strategists said the Fed should consider raising rates by 150 basis points.
- “Why not just rip off the Band-Aid — let’s get there someday,” Michael Schumacher told CNBC.
- Most economists expect the Fed to raise rates by 75 basis points after Wednesday’s meeting.
A senior strategist at Wells Fargo said the Fed should raise interest rates by 150 basis points — even though that could spark a stock market “carnage.”
Most economists expect the Fed to announce another big rate hike of 75 basis points at the end of its two-day meeting later on Wednesday.
But given that the Fed may want to raise its benchmark rate from 2.5% to 4%, it should consider doing so with a larger rate hike in its September policy decision, Michael Schumacher tell CNBC Tuesday.
“The Fed knows what the destination is. It now has a funds rate, capped at 2.5 percent,” the head of macro strategy at Wells Fargo Securities said on “Quick Money.”
“This year is likely to reach more than 4%,” he added
“Why not just rip off the Band-Aid – let’s get there in a day.”
The central bank has raised interest rates by 75 basis points in the last two consecutive meetings to curb inflation Near 40-year highs.
Schumacher acknowledged that a 150 basis point rate hike is unlikely because of the shock to the market. Stocks fell, with the S&P 500 down 19.3% so far this year, as investors assessed whether aggressive Fed tightening could tip the U.S. into recession.
“The biggest concern for the market is, ‘Oh my God, they’ve made a record move — what’s going to happen next month or next month?'” Schumacher said.
“It takes very good communication and confidence or the outcome: a massacre. No one wants that.”
Markets will remain volatile in the coming months as the central bank unwinds its accommodative monetary policy since the 2008 financial crisis, Schumacher said.
“When you think about the past 10+ years, we’ve had a very loose monetary policy for most of it,” he said. “In a lot of cases, especially the super-stimulus fiscal policy in the U.S..”
“So, do a really quick U-turn — I suspect it’s going to be very bumpy,” he added. “It’s probably a big leap to think that it’s going to somehow go smoothly from here.”
U.S. stock futures opened modestly higher on Wednesday ahead of the Federal Reserve’s decision, after the major indexes closed down about 1 percent on Tuesday. S&P 500 futures were up 0.28%, Nasdaq futures were up 0.08% and Dow Jones Industrial Average futures were up 0.29%.
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