Sharp Fed criticism: “There only helps prayer”: Strategist foresees unprecedented recession | news
• The Fed underestimated inflation and also misjudged the risk of a recession
• Investors should pray
In an interview with “MarketWatch”, Keith McCullough, founder and CEO of Hedgeeye Risk Management, sharply criticized the Federal Reserve’s monetary policy. Investors shouldn’t be pinning their hopes on the US Federal Reserve to bail out the markets.
A realization by the Fed would come far too late
The US monetary authorities have been tightening the interest rate reins for months, and further increases in the key interest rate can be expected over the course of the year. The Fed is thus walking a fine line, because while interest rate hikes are considered a tried and tested means of curbing inflation, they also fuel the risk of a recession. The monetary watchdogs apparently still believe they are on the safe side, but Keith McCullough recently appeared convinced that the border towards recession had already been crossed.
“Recession today is what ‘temporary inflation’ was a year ago,” said the expert in an interview, referring to the US Federal Reserve’s hesitation in the face of rising inflation last year. In his view, the Fed is misjudging it again: “The Fed is just as wrong about the risk of recession as it is about inflation.” Even if the central bankers were to initiate an about-face and adjust their monetary policy, it would no longer be possible to prevent the economic engine from stalling: “You are much too late,” said the expert. “Just as they have been unable to stop inflation, so they are unable to stop the coming US corporate earnings recession or the main recession,” McCullough said.
Severe recession ahead
In his view, a recession can no longer be prevented. “I’m about as pessimistic as I have been since 2008,” said the strategist, referring to the global economic crisis. “Instead of a soft landing for the economy, I think the landing will be hard. The recessionary economic data is getting worse, not only in the US but also in Europe.”
McCullough assesses the current situation as even more dramatic than in 2008. At that time it was about the collapse of Wall Street, but now it is affecting Main Street and thus the everyday lives of many people and consumers. “Main Street is broke. Main Street is absorbing all this inflation into their cost of living. Main Street has the highest credit card rates since the 1990’s. On that basis, it’s a lot worse than it was in 2008. If you’re trying to pay your bills with credit, “It’s getting worse and worse. And then they will lose their jobs. The collapse of work is always the last thing that goes down. We are right on the threshold of the work cycle, which is going in the wrong direction,” says the expert, who is not very optimistic.
Investors would be wrong to buy stocks when the Fed is dovish. This rule only applies if you are not in a recession. “This next recession – which could be the biggest earnings recession in modern times – will be quite a lesson for people who are still optimistic with the expectation that the Fed will bail them out,” McCullough said. “For those who are still betting on growth, profitless growth or crypto, I recommend praying.”
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