The differing views on the outlook for Fed policy continue to pile up.
Investors can now add another prominent name to the mix: Carlyle Group co-founder and always well-connected David Rubenstein.
“On the whole, I would say interest rates are going to continue to go up for a while,” Rubenstein said in a lengthy interview with Yahoo Finance Live (video above). “I don’t really know, but I suspect in May when the FOMC meets, they will have another 25 basis point increase. The markets would suggest that would be enough for the rest of the year. But you never know if inflation rears its head again, maybe in the fall they will have another rate increase.”
In late March, the Federal Reserve lifted interest rates by a quarter-point to a range of 4.75% to 5%. The hike marked the ninth consecutive FOMC meeting in which rates were increased and came despite the banking turmoil that unfolded in March, arguably because of rising rates.
What’s more, the Fed forecasted raising interest rates to 5.1% by the end of 2023, which suggests at least one more rate increase is in the cards before a pause long sought after by stock market bulls. The Fed projected rates coming down to 4.3% by the end of 2024.
Since the Fed’s March meeting, however, various Fed officials have sent conflicting views to market participants.
Boston Fed President Susan Collins and Richmond Fed President Tom Barkin both struck hawkish tones in speeches in the week following the Fed decision.
The same inflation-fighting stance was assumed by Minneapolis Fed President Neel Kashkari this week in public comments.
“Inflation is still very high,” New York Fed President John Williams said in an exclusive interview with Yahoo Finance Live on Tuesday, striking a hawkish tone of his own.
On the other end of the spectrum is new Chicago Fed President Austan Goolsbee, whose thinking on the rate outlook echoed the plugged-in high financier Rubenstein.
“At moments like this of financial stress, the right monetary approach calls for prudence and patience,” Goolsbee told the Economic Club of Chicago.
The mixed messages from the Fed reflect an economy that’s still showing signs of being too hot for the string-pullers at the institution.
The labor market created a solid 236,000 jobs in March, per the latest non-farm payrolls report. And although March’s Consumer Price Index (CPI) cooled from February, it still showed a 5% year-over-year headline increase.
CEOs continue to tell Yahoo Finance they are eyeing fresh rounds of price increases due to stubborn inflation in areas such as packaging and labor.
Carlyle’s Rubenstein says he has been surprised that the stock market has clung to gains in the face of the aggressive Fed rate hiking campaign and economic growth slowdown that may extend into the fall, much to the dismay of investors.
The gains in markets have come especially hot and heavy in tech stocks that historically tend to respond well to a low-rate environment. On the year, the Nasdaq Composite is up a cool 15% with social media platform Meta up close to 80% and chip darling Nvidia up 84%.
“I’ve been surprised that the market has been as resilient as it has been only because normally when you see this kind of dramatic rise in interest rates over the last 12 months, you would expect GDP to go down and you expect people talking about recession more than they are,” Rubenstein added. “So far it seems unlikely we’re going to have a recession this year, or less likely than people once thought.”
That call could hinge on what the Fed does, as is often the case.
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