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Written by: George Prior
The U.S. Federal Reserve has already failed on inflation, they must not do so again by “hitting the brakes too hard with too many rate hikes,” affirms the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The comments from deVere Group’s Nigel Green follow the world’s most influential central bank on Wednesday refusing to rule out an aggressive run of interest rate rises as the Chair all but confirmed the first increase would be implemented in March.
He says: “As was widely expected by the markets, the Fed – now in hawkish mode - has practically green-lit a rate rise for the first time in three years in March as it tries to take on surging inflation, which is running at its hottest in 40 years.
“The Fed admitted that inflation may not drop toward its pre-pandemic levels any time soon, and that the rise in prices could, in fact, speed-up.
“Why, then, did the world’s most powerful central bank not act sooner to stem this off quicker?
“This grand scale inaction must be the biggest miscalculation in the Fed’s history.”
He continues: “However, now the debate is focusing on how fast the U.S. central bank will move toward policy normalization.”
Some leading experts on Wall Street are saying there could be up to five rate hikes in 2022, others are now suggesting even more than this.
“I would urge the Fed not to fail on inflation again by hitting the brakes with too many rate hikes,” says Nigel Green.
“The excess money in the system will come out fast. There’s a real risk that numerous interest rate hikes would cause a recession and may not even slow inflation as the soaring prices are triggered by supply chain issues which the Fed’s hikes will not solve.”
At Wednesday’s meeting, the Chair Jerome Powell swerved a question about whether the Federal Open Market Committee (FOMC) would raise rates at all subsequent meetings this year, which would mean seven increases in 2022.
The deVere CEO concludes: “With booming demand, snarled supply chains and high levels of wage growth, the Fed might be tempted to act too fast with rate hikes this year.
“But such moves could turn out to be a masterclass in the law of unintended consequences.”