Hayman Capital Management founder and CIO Kyle Bass argues that if the Federal Reserve follows an “aggressive oil price regime” it could lead to a recession.
Federal Reserve Governor Christopher Waller said on Friday that the US central bank should consider raising interest rates by half a point at some point this year and begin balance sheet cuts by July to fight “raging” inflation.
Waller, in an interview with CNBC, said he thinks the Fed needs to “fast-track” interest rate hikes, even though he voted in favor of a 25 basis point hike this week due to uncertainty surrounding Russia’s invasion of Ukraine.
Fed RAISES INTEREST RATES FOR FIRST TIME IN 3 YEARS, PROJECTS 6 MORE RISE DURING INFLATION GROWTH
“The data is basically screaming for us to hit 50, but geopolitical events have been telling you to move forward with caution,” he said, adding whether meetings or not. But the data definitely indicates that we are moving in that direction.”
Christopher Waller, Executive Vice President of the Federal Reserve Bank of St. Louis, arrives for dinner during the Kansas City Federal Reserve-sponsored Jackson Hole Economic Symposium in Moran, Wyoming, USA, Thursday, August 22 (David Paul Morris/Bloomberg via Getty Images/Getty Images)
Fed policymakers voted 8-1 this week to raise the federal funds rate by 25 basis points and forecast at least six more such hikes over the next year. (The only dissenter, St. Louis Fed President James Bullard, pushed for a half-point raise.) The projections, known as the dot plot, show that at least half of the 16 Fed officials believe the highest inflation in four decades warrants more aggressive tightening.
“We’re in a different place than we used to be,” Waller said. “We have a much larger balance sheet, the economy is in a completely different position. Inflation is rampant. Thus, we are in a position where we can actually take a large amount of liquidity out of the system without causing much damage. ”
His comments came hours after Bullard said the Fed needed to raise rates to at least 3% this year, the equivalent of 12 quarter-point increases.
In this file photo from January 29, 2020, Federal Reserve Chairman Jerome Powell pauses during a press conference in Washington. (AP Photo/Manuel Balce Ceneta, File/AP Newsroom)
“The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s discount rate is currently too low to prudently manage the macroeconomic situation in the US,” Bullard wrote in a Friday statement. “The committee will have to act quickly to resolve this situation or risk losing confidence in its inflation target.”
But observers noted that it is unusual for a Fed governor to openly disagree with the chairman, and this may indicate simmering discontent. Both Powell and Waller were nominated by former President Trump.
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“What’s remarkable here, aside from the hawkish stance, is that Fed governors rarely disagree,” Axel Merk, CEO of Merk Investments, tweeted. “Archery by the Fed Governor is a sign that Powell is struggling to herd the cats. Where it leads?”
Merck said the last time the head of the Fed publicly disagreed with the chairman was in 2005, when Ben Bernanke headed the central bank.
“It’s too early to talk about a riot at the Fed, but when the Fed governor openly disagrees with the Fed’s policy, it’s worth watching,” he said.