Could the Medicine Kill the Patient? – AGF Perspectives

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Insights and market perspectives

ECONOMIC GROWTH IS SLOWING DOWN and oil prices have fallen below $80 a barrel – so shouldn’t the Federal Reserve ease up? Apparently not; central bankers poised to hike rates again by 75 basis points when the FOMC meets on November 1-2.

REPEATING OUR RANTIS FROM LAST TUESDAY: The Fed is on the verge of becoming politicized as Chairman Jerome Powell, who misread inflation last year, is now overreacting. The Fed, it seems, is always behind the curve fighting the last battle.

INCREDIBLY, POWELL SEEMS to be aiming for a recession and a housing crisis. Democrats fear it could hurt their electoral prospects, which have slacked off in recent days after the Labor Day surge. Plunging financial markets have boosted the GOP’s prospects.

To be honest there is a growing chance that hard money medicine could kill the patient. A leading proponent of this view is renowned market guru Jeremy Siegel, who lashed out at the Fed on CNBC last Friday. The Fed, which should have tightened last year, is now tightening too aggressively — making the biggest mistake in its 110-year history, Siegel said.

AFTER HOLDING RATES STABLE as commodity inflation surged last year, central bankers are now tightening dramatically despite clear signs that inflation has peaked. A recession is now likely, Siegel said (the Atlanta Fed’s third-quarter GDP forecast calls for 0.3 percent growth).

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SIEGEL SAID calling the Fed’s monetary policy “absolutely bad” would be “an understatement.”

WE WILL GO ON A PART predicting that the Fed could respond to the market crash and economic slowdown by softening a little and raising the federal funds rate by 50bps instead of 75bps at the early November meeting. That could relieve the markets.

BUT MORE RATE HIKES are likely through early 2023 as the Fed continues to tighten until it hits its highly contentious targets: an economic slowdown and a housing slump. Be careful with your desires. . .

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliates, funds or investment strategies.

The views expressed on this blog are provided as a general source of information based on information available at the time of publication and should not be construed as personal investment advice or an offer or solicitation to buy and/or sell any security. Speculations or opinions expressed about future events, such as market or economic conditions, corporate or securities performance, or other forecasts represent the beliefs of the author and do not necessarily represent the views of AGF, its subsidiaries, or any of its affiliates, funds, or investment strategies. Every effort has been made to ensure the accuracy of these comments at the time of publication; however, accuracy cannot be guaranteed. Market conditions are subject to change and AGF accepts no responsibility for individual investment decisions resulting from the use of or reliance on the information contained herein. All financial projections are based on the opinions of the author and should not be relied upon as a forecast. The forward-looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. The information contained in this commentary is intended to provide you with general information about the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to an individual’s circumstances.

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