It’s a move that could trigger panic on Wall Street.
But Michael Schumacher of Wells Fargo Securities thinks the Federal Reserve is raising interest rates too slowly, tells CNBC “Quick money“He would seriously consider a 150 basis point increase this week if he were Chairman Jerome Powell.
“The Fed knows where to go. So the current deposit rate, the upper limit, is 2.5%. It’s likely to exceed 4% this year,” the head of macro strategy of the company said Tuesday. “Why not tear up the Band-Aid. Let’s get there in a day. But of course, the Fed won’t do that.”
He acknowledged that it would be a tough move to make without sending the market into a whirlwind. It’s important for policymakers to convince investors that the historic spike in rates is overwhelming, according to Schumacher.
“It’s going to make a very big move and then it’s going to stop or stop pretty soon. The big fear in the market will be ‘oh my god, they made a move of record size. What will happen next month or the month after that? Schumacher said, “It will require extremely good communication and confidence or the result: Carnage. And no one wants that.”
Based on this month’s CNBC Fed survey, Street believes the Fed will raise rates by 75 basis points on Wednesday. This will be the Fed’s fifth hike this year.
Schumacher believes the Street has the September meeting rate forecast right. But he warned it was likely that Powell would be more hawkish during Wednesday’s press conference due to hot inflation.
“When you look at the last 10 years, we’ve had extremely easy monetary policy most of that time. Superstitious fiscal policy in many cases, especially the US. So , done very quickly – noted Schumacher. “To think that somehow it’s going to go smoothly from here is probably a huge leap.”
And Treasury yields are rising rapidly. The 2-year Treasury bond Returns hit their highest level since 2007. This is where Schumacher recommends investors for relative safety.
“Look at the bottom end of the U.S. Treasury curve,” Schumacher said. “You can see that the two-year Treasury yields are only about 4%. It’s gone up a lot,” Schumacher said. “If you think about real yields, which a lot of people in the bond market focus on, it’s probably not a bad place to hide. Take a short position, sit there for a while. months [and] see what the Federal Reserve does and then react. “