October 1, 2022

  • The Federal Reserve should consider raising rates by 150 basis points, a Wells Fargo strategist said.
  • “Why not just rip off the band-aid — let’s get there in one day,” Michael Schumacher told CNBC.
  • Most economists expect the Fed to raise interest rates by 75 basis points after Wednesday’s meeting.

The Federal Reserve should raise interest rates by 150 basis points — though that would likely cause “carnage” in stocks, Wells Fargo’s top strategist said.

Most economists expect the US central bank to announce another big rate hike of 75 basis points at the end of its two-day meeting later on Wednesday.

But with the Fed likely to want to raise its key rate from 2.5% to 4%, it should consider achieving that by making an even bigger hike in its September policy decision, Michael Schumacher he told CNBC on Tuesday.

“The Fed knows what the destination is. It has a funds rate now, the cap is 2.5%,” Wells Fargo Securities’ head of macro strategy told “Fast Money.”

“Very likely to reach 4%-plus this year,” he added

“Why don’t we just rip the band-aid off – we’ll be there in a day.”

The central bank raised interest rates by 75 basis points at its two previous consecutive meetings in an attempt to tame inflation is hovering near 40-year highs.

Schumacher admitted that an increase of 150 basis points was unlikely, due to the shock it would cause to the markets. Stocks fell, with the S&P 500 down 19.3% year-to-date as investors weighed whether aggressive Fed tightening could tip the US into recession.

“The big fear in the market would be, ‘Oh my God, they’ve made a record move — what’s going to happen next month or the month after that?'” Schumacher said.

“That would require incredibly good communication and confidence or the result: Carnage. And nobody wants that.”

The market still faces turbulence in the coming months due to the withdrawal of loose monetary policy by the central bank since the 2008 financial crisis, according to Schumacher.

“When you look at the last 10-plus years, most of that time we’ve had incredibly easy monetary policy,” he said. “Superstimulative fiscal policy in many cases, especially in the US.”

“So a very quick turnaround – I imagine it’s going to be very rocky,” he added. “To think it’s going to be kind of smooth sailing from here is probably a big leap.”

U.S. stock futures pointed to a slight gain at the open on Wednesday, ahead of the Fed’s decision, after major indexes closed about 1% lower on Tuesday. S&P 500 futures rose 0.28%, Nasdaq futures rose 0.08% and Dow Jones Industrial Average futures added 0.29%.

Read more: Stanley Druckenmiller says the Fed is like a ‘reformed smoker’, while Jeff Gundlach warns it’s pushing the US into the dustbin. 6 market experts speak directly about rate hikes.

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