We should ‘fight the Fed’ because it is fallible, investment advisor says

Federal Reserve Chairman Jerome Powell testifies during the House Financial Services Committee hearing entitled Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response Wednesday, December 1, 2021, at the Rayburn Building.

Tom Williams | CQ Roll Call, Inc. | Getty Images

According to Stephen Isaacs, chairman of the investment committee at Alvine Capital, investors shouldn’t necessarily base their investment decisions on Federal Reserve actions.

“The question we need to ask is, ‘Should we fight the Fed?’ And I’m actually saying that we should consider that because the Fed is fallible. The Fed has been fundamentally wrong for two years,” Stephens told CNBC’s Squawk Box Europe on Thursday.

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His comments come as the US experiences rapid inflation and a booming dollarand economists speculate on what the Fed will do next.

Investors around the world will be watching the September jobs report, due later on Friday, for more clues on the Fed’s next steps.

We should fight the Fed because it's fallible, says investor

Stephens said it took the Fed until this summer to really address the US economic situation after “stoking inflationary fires” towards the end of the Covid-19 pandemic.

The Fed’s interest rate was near zero in March, but it has since begun its most aggressive streak of rate hikes since the 1980s, raising interest rates to a target of at least 3%.

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Now, Stephens said it might be worth forcing the Fed to turn around.

“If the data really changes, if the economic and credit situation, which is critical in the economy, really starts to unravel, the Fed will … pivot aggressively. And given that the market is so far ahead on much higher interest rate assumptions, it could have a very dramatic impact on asset prices,” Stephens said.

The US is not yet out of the woods economically, Stephens said, as a number of “very difficult situations” lie ahead in the coming months.

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“I think there could be a credit event [in that time]. There could be something that explodes… So that’s what I’m really looking for, I’m looking for a trigger point, and I think investors should be looking for assets at this time,” Stephens said.

Don't expect the Fed to switch gears anytime soon, says iCapital's Anastasia Amoroso

There has been much talk of a so-called Fed pivot in recent months, with Anastasia Amoroso, chief investment strategist at iCapital, saying on Tuesday that investors should not count on an imminent Fed reversal.

CNBC’s Hugh Son contributed to this report.

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