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The economy would buckle under the Fed’s plan to hike rates to 4% and beyond, JPMorgan Asset Management’s David Kelly said.
Inflation is dropping, and that level of tightening would amount to overkill, he said.
“I just don’t think the economy can take it,” Kelly said, warning of a recession.
The economy won’t be able to take the Fed’s plan to keep raising rates above 4%, and that will likely cause it to tip into a recession, according to JPMorgan’s Asset Management strategy chief David Kelly.
“This economy has one foot in the grave … It really looks like it could get pushed into recession, and I just don’t see the reason why. If inflation is coming down slowly, let it come down slowly,” Kelly said in an interview with CNBC on Wednesday, shortly after the central bank issued another 75-point rate hike.
It was the third rate hike of that size this year as Fed officials scramble to rein in inflation, and more are likely in the cards. Projections for this year’s policy rate were hiked from 3.4% to 4.4%, with expectations for another 75-point rate hike to come in November, a 50-point hike in December, and possibly a 25-point hike early 2023, Kelly said.
That would raise the policy rate above 4%, even as inflation is coming down. While above expectations, the August Consumer Price Index clocked in at 8.3%, down from 8.5% in July and 9.1% in June.
“I think they just want to sound hawkish. I mean, I’m trying to figure out what I’m supposed to be so scared about here,” he said.
Falling prices could make the Fed’s projected rate hikes unnecessary, especially when considering the strength of the US dollar – which will be a headwind for US imports – as well as the strength of the housing sector, which is still pricing homebuyers out of the market.
“I just don’t think the economy can take it,” Kelly said, as more rate hikes will only add to the slowdown pressure on the economy – possibly tipping the US into a recession.
Other analysts have already flagged a recession as inevitable, largely due to the Fed’s hawkishness. Top economist Nouriel Roubini said he believed the US would spiral into a “long and ugly” recession that would plunge stocks another 40%. Billionaire investor Ray Dalio predicted a similar headwind for the economy if the policy rate was driven up to 4.5%.