Morgan Stanley CEO Gorman calls on Fed to raise interest rates soon

With economic growth currently strong, the Federal Reserve is expected to raise interest rates soon to fight a future slowdown, Morgan Stanley CEO James Gorman said on Monday.

Speaking a day before the central bank begins its two-day policy meeting, the Wall Street central chief said he actually expects policymakers to telegraph monetary tightening this week in 2022.

“We are heading into a rising interest rate environment,” Gorman told CNBC’s Wilfred Frost in an interview on “Closing Bell.” “I thought the Federal Reserve had better store some of the rate hikes, so when the inevitable downturn strikes, you’ll have ammunition to fight with.”

Fed Chairman Jerome Powell has given strong indications of a political pivot in recent days.

The Fed was prepared to let inflation soar until employment had fully recovered. However, with consumer prices at their highest levels in nearly 40 years, officials have declared themselves ready to withdraw some of the super-easy measures put in place during the Covid crisis.

The first step will be to accelerate the rate at which the Fed is reducing its monthly purchases. The Federal Open Market Committee is expected to more than double the reduction to $ 30 billion per month.

This would allow the Fed to start raising rates as early as March 2022, although markets likely see the first hike in May.

Gorman said the Fed is “10 rate hikes from normal,” or the rate that would be considered neither too loose nor too tight.

“If I were the Fed, I would start moving sooner rather than later. Stock up on ammo and accept reality,” Gorman said.

Rather than slowing the recovery, Gorman said rate hikes would stabilize the economy, although they could disrupt financial markets for some time.

“I don’t think it derails the economy. That’s what you need, you need balance in the economy,” he said.

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