Ignore the Fed’s inflation warning, says top ANBLE David Rosenberg

Ignore the Fed's inflation warning, says top ANBLE David Rosenberg

Fed’s Warning on Interest Rates Met with Skepticism by David Rosenberg

Federal Reserve Chair, Jerome Powell, recently signaled to Wall Street that interest rates could rise further and remain elevated for longer than previously expected. However, renowned economist David Rosenberg urges investors to ignore this messaging, citing the central bank’s long history of getting things wrong.

In an X post on Wednesday, Rosenberg, the Chief Economist at Rosenberg Research, highlighted the Fed’s track record of incorrect predictions, poking fun at their previous misjudgments. “Fade the Fed,” he advises, calling attention to the central bank’s notorious errors in forecasting major economic events.

Rosenberg points out the Fed’s failure to recognize the dot-com and housing bubbles, their overestimation of the US economy’s recovery after the financial crisis, and their dismissal of last year’s inflation surge as a temporary issue. By underestimating the seriousness of inflation and its potential long-term effects, Powell and his colleagues may be misguided in their belief that it will remain a transitory problem.

As someone who accurately predicted both the dot-com and housing crashes while serving as the Chief North American Economist at Merrill Lynch, Rosenberg emphasizes the magnitude of these missteps. He believes the Fed’s miscalculations have hindered their ability to make significant interest rate cuts.

To drive his point home, Rosenberg refers to the Fed’s dot-plots from mid-2021, which projected a 0.625% funds rate by the end of 2023. Now, however, the Fed is predicting that the year will close with an interest rate of 5.625%. This stark difference highlights the Fed’s inconsistent forecasting, leading Rosenberg to wonder if they forgot to include a ‘5’ in their predictions two years ago, drawing a playful comparison to Lucy pulling away the football in the Peanuts comic strip.

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The reality is that inflation soared as high as 9.1% last summer, prompting the Fed to raise interest rates from near zero to over 5%. This sudden increase in borrowing costs inevitably impacts consumers, causing a cash shortage and potentially leading to a decline in stock and house prices. Rosenberg warns that these factors, combined with high inflation, could precipitate a recession.

Higher interest rates discourage spending in favor of saving and raise the cost of debt. This can erode demand, limit access to credit for individuals and businesses, depress asset prices, and even trigger an economic contraction.

As investors navigate uncertain economic terrain, it is imperative to question the reliability of Fed forecasts. David Rosenberg’s scrutiny of the central bank’s historical inaccuracies serves as a valuable reminder to approach their messaging with skepticism.

financial crisis
| Shrugging off inflation surge as | Neglected to address the root causes of rising inflation | temporary

In light of David Rosenberg’s warning, investors should conduct extensive research and adopt a cautious approach when considering the impact of Fed policies on the economy and financial markets.

• Economy
• Federal Reserve
• Jerome Powell