What famous investors have to say about the FED raising rates
Investors worry the Fed risks a recession by paying too much attention to inflation data and raising interest rates too much, so here's what Stanley Druckenmiller, Barry Sternlicht, and other Fed watchers had to say.
- We've had almost 15 years of free money that changed the economic structure and created asset bubbles
- Now, the Fed tries to fight inflation but it actually follows the 2-year Treasury yield
- However, it looks like the Fed might overtighten money liquidity, as it is getting more and more aggressive
- That overtighten may bring more troubles to the economy
- Druckenmiller said there is a high probability that the market is going to be kind of flat for 10 years
- More jumbo rate hikes from the Fed will spark a US recession and a housing crash
- If the Fed pops this bubble, we will be in a deflationary spiral
- Stanley Druckenmiller
"There's a high probability in my mind that the market, at best, is going to be kind of flat for 10 years," the billionaire investor said.
"They've gone from printing a bunch of money, like driving a Porsche at 200 miles an hour, by not only taking the foot off the gas but just slamming the brakes on," he said.
"Now they're like reformed smokers," Druckenmiller said.
- Jeff Gundlach
"I've been saying for a long time that the Fed does nothing but follows the 2-year Treasury yield. Now they are catching up the Fed Funds rate to that level," the DoubleLine CEO said.
"Unfortunately, it looks like the Fed might overtighten," Gundlach said.
"The Fed is getting aggressive to the point that they oversteer the economy into the dumpster," added Gundlach, whose nickname is "Bond King".
- Barry Sternlicht
More jumbo rate hikes from the Fed will spark a US recession and a housing crash.
"If the Fed keeps this up, they are going to have a serious recession and people will lose their jobs," billionaire real-estate investor Sternlicht said.
"You are going to see cracks everywhere," he added.
The Fed "is attacking the economy with a sledgehammer, they don't need to" the Starwood Capital Group boss said.
- Nassim Taleb
Zero interest rates have hurt the economy, and we need to get back to normal.
"We've had 15 years, 14 and a half years of Disneyland that basically has destroyed the economic structure. Think about it: No interest rates," Taleb, author of "The Black Swan", said.
"At zero interest rates … for long periods of time, you are hurting the economy. You're creating bubbles, creating tumors like bitcoin, creating hedge funds that should not exist, but have existed for 15 years."
"So now we need to go back to normal economic life. People with experience remember that there was at some point such a thing as a discount rate … that your investment had to earn cash flow," the former options trader said.
- Mark Spitznagel
The Fed's hikes risk sparking an asset slump and tipping the economy into a devastating recession.
"If the Fed's going to try to normalize rates, they're going to bring inflation down very, very quickly, but it's also going to cause devastation," the co-founder of Universa Investments said.
"The controlled burn can turn into a wildfire cascade," Spitznagel said about the Fed's tightening plan.
"That is the real risk here. And that's what investors need to think about — not the type of losses that occurred this year, but rather the type of losses that this can turn into. Where the Fed actually can't do anything to stop it."
"We should really worry more about deflation. That's a huge, huge risk people are not thinking about. If the Fed pops this bubble, we will be in a deflationary spiral."
- David Rosenberg
The Fed is too focused on inflation data when it should give the economy a break from hikes.
"I'd be pausing right now and assessing the tightening that's already been put into the system," the chief economist of Rosenberg Research said. "We're talking incessantly about inflation, but the economy is flat on its back right now."
"They're raising rates and reducing the size of the balance sheet in a rather dramatic fashion into an inverted yield curve. And that is going to sow the seeds of a recession, if we're not already in one."
◙ Stanley Druckenmiller says the Fed is like a 'reformed smoker