A major Wall Street company ranks financial instability versus inflation as its top economic risk over the next three months.
In an interview following the Federal Reserve’s quarter-point rate hike, Wells Fargo Securities’ Michael Schumacher suggested that policymakers are underestimating how quickly tightening credit conditions could hurt the economy.
“The Fed doesn’t really give enough credence to the idea that tighter credit means things are going to slow down pretty quickly,” the company’s head of macro strategy told CNBC’s Fast Money on Wednesday.
He estimates that it will take a month or two before there is clarity about the loan terms.
“It’s hard to say at the moment whether the Fed tightened enough or too much,” Schumacher said. “That’s why the market has rallied so strongly – whether it’s the stock market or the bond market. People try to get an idea of it.”
On Wednesday, shares closed the session at their lows. The Dow fell 530 points, breaking a two-day winning streak. The S&P 500 and the tech-heavy Nasdaq also closed lower.
As long as the financial sector avoids another collapse, Schumacher believes the Fed will keep interest rates high longer because inflation is still too high.
“We tell our clients that the Fed is likely to hike rates again. [But] not much confidence about that call,” Schumacher said. “We’d be shocked if it was more than that.”
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