How fallible are Fed rates?
The U.S. is continuing to see a strengthening economy backed by healthy markets. But one expert warns that Federal Reserve rates may not fall fast enough to create a soft landing.
"If I were advising the Fed, I would just say to listen to the Treasury market," Stephen Mulholland, chief investment officer at Mulholland & Kuperstock Asset Management, said on Investor's Business Daily's "Investing with IBD" podcast. He says the Fed should normalize rates to stave off any possibility of a market downturn.
Audio Version Of Podcast Episode
"The longer (the Fed) feels comfortable and the slower they go, the higher the odds go that we get another repo quake or find out some hedge funds are using too much leverage to arbitrage markets."
Why Fed Rates Matter For The Economy
Throughout higher Fed rates, Fed Reserve Chair Jerome Powell has reiterated that fighting inflation is one of its main goals.
Fed rates are one of the few tools at the Fed's disposal to ease overheating in the economy. Inflation in the U.S. economy began largely after the Covid-19 pandemic disrupted worldwide supply chains and changed the shape of consumer demand, causing prices to rise.
Recently, the Fed has signaled rate cuts are likely ahead, but has also made it clear the conditions are not yet ready for cuts in the U.S. economy.
The Fed may also be leery about cutting rates before inflation is fully under control, with worries that a drop in Fed rates may send prices skyrocketing when combined with another unforeseen event.
Still, Mulholland believes the downsides of keeping rates steady outweigh the potential benefits, and says the Fed has been wrong in the past, most recently once the Covid-19 pandemic began to batter markets. "They were too slow before, and they're kind of too slow now," he said.
Check out this week's podcast episode for a look at the Fed's rate-cut debate.
Plus, IBD's team analyzes current stock market conditions and takes a look at Tesla and Super Micro Computer.
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