Fed is ‘disconnected’ from reality, must cut rates 5 times next year, portfolio manager says

The
Federal
Reserve
needs
to
cut
interest
rates
at
least
five
times
next
year
to
avoid
tipping
the
U.S.
economy
into
a
recession,
according
to
portfolio
manager
Paul
Gambles.

Gambles,
co-founder
and
managing
partner
at
MBMG
Group, told

CNBC’s
“Squawk
Box
Asia”
the
Fed
was
behind
the
curve
on
cutting
rates,
and
in
order
to
avoid
an
extreme
and
protracted
monetary
tightening
cycle
it
will
have
to
deliver
at
least
five
cuts
in
2024
alone.

“I
think
Fed
policy
is
now
so
disconnected
from
economic
factors
and
from
reality
that
you
can’t
make
any
assumptions
about
when
the
Fed
is
going
to
wake
up
and
and
start
smelling
the
amount
of
damage
that
they’re
actually
causing
to
the
economy,”
Gambles
warned.

The
current
U.S.
policy
rate
stands
at
5.25%-5.50%,
the
highest
in
22
years.
Traders
are
now
pricing
in
a
25-basis-point
cut
as
early
as
March
2024,
according
to
the

CME
FedWatch
Tool.

Federal
Reserve
Chairman Jerome
Powell said
on
Friday
that
it
was
too
early
to
declare
victory
over
inflation,
watering
down
market
expectations
for
interest
rate
cuts
next
year. 

“It
would
be
premature to
conclude
with
confidence
that
we
have
achieved
a
sufficiently
restrictive
stance,
or
to
speculate
on
when
policy
might
ease,”
Powell
said
in
prepared
remarks.

Recent
data
from
the
U.S.
has
signaled
easing
price
pressures,
but
Powell
emphasized
that
policymakers
plan
on
“keeping
policy
restrictive”
until
they
are
convinced
that
inflation
is
heading
solidly
back
to
the
central
bank’s
target
of
2%.

Financial
markets,
however,
perceived
his
comments
as
dovish,
sending

Wall
Street’s
main
indexes
to
new
highs
and
Treasury
yields
sharply
lower
on
Friday.
The
perception
now
being
that
the
U.S.
central
bank
is
effectively
done
raising
interest
rates.

U.S.
consumer
prices
were
unchanged
in
October
from
the
previous
month,
lifting
hopes
that
the
Fed’s
aggressive
rate-hiking
cycle
was
starting
to
bring
down
inflation.

The
Labor
Department’s
consumer
price
index,
which
measures
a
broad
basket
of
commonly
used
goods
and
services,
climbed
3.2%
in
October
from
a
year
earlier
but
remained
flat
compared
with
the
previous
month.

Veteran
investor
David
Roche
told

CNBC’s
“Squawk
Box
Asia”
that
unless
there
were
big
external
shocks
to
U.S.
inflation
in
the
form
of
energy
or
food,
it
was
“almost
certain”
that
the
Fed
was
done
raising
rates,
which
also
means
the
next
rate
move
will
be
down.

“I
will
stick
to
3%,
which
I
think
is
already
reflected
in
many
asset
prices.
I
don’t
think
we’re
going
to
push
inflation
down
to
2%
anymore.
It’s
too
embedded
in
the
economy
by
all
sorts
of
things,”
said
Roche,
president
and
global
strategist
at
Independent
Strategy.

“Central
banks
don’t
have
to
fight
as
fiercely
as
they
did
before.
And
therefore,
the
embedded
rate
of
inflation
will
be
higher
than
before
it
will
be
3%
instead
of
2%,”
said
Roche,
who
correctly
predicted
the
Asian
crisis
in
1997
and
the
2008
global
financial
crisis.

It
is
now
left
to
be
seen
what
the
Fed’s
interest-rate
plans
are
at
its
next
and
final
meeting
of
the
year
on
Dec.
13.
Most
market
players
expect
the
central
bank
to
leave
rates
unchanged.