The Fed needs to 'rip off the Band-Aid' and hike interest rates by 150 basis points, Wells Fargo strategist says
- The Federal Reserve should consider a 150-basis-point rate hike, a Wells Fargo strategist said.
- "Why not just rip off the Band-Aid — let's get there in one day," Michael Schumacher told CNBC.
The Federal Reserve should hike interest rates by 150 basis points — even though that would likely spark "carnage" in stocks, a top Wells Fargo strategist has said.
Most economists expect the US central bank to announce another jumbo rate hike of 75 basis points at the conclusion of its two-day meeting later Wednesday.
But given the Fed likely wants to raise its base rate from 2.5% to 4%, it should consider getting there by making one even more supersized hike in its September policy decision, Michael Schumacher told CNBC on Tuesday.
"The Fed knows what the destination is. It's got the funds rate now, the upper bound is 2.5%," the Wells Fargo Securities' head of macro strategy said on "Fast Money".
"Very likely it gets to 4%-plus this year," he added
"Why not just rip off the Band-Aid — let's get there in one day."
The central bank has raised interest rates 75 basis points at its two previous consecutive meetings, in an effort to tame inflation running near 40-year highs.
Schumacher acknowledged a 150 basis point hike is unlikely, because of the shock it would deliver to markets. Stocks have sagged, with the S&P 500 down 19.3% year-to-date, as investors assessed whether the Fed's aggressive tightening could tip the US into a recession.
"The big fear in the market would be, 'Oh my goodness, they've done a record-sized move — what's going to happen next month or the month after that?'" Schumacher said.
"It would require incredibly good communication and confidence or the result: Carnage. And nobody wants that."
Market still face turbulence in coming months from the central bank's unwinding of the loose monetary policies in place since the 2008 financial crisis, according to Schumacher.
"When you consider the last 10-plus years, we've had incredibly easy monetary policy for most of that time," he said. "Super-stimulative fiscal policy in a lot of cases, especially the US."
"So, doing a very quick U-turn — I suspect it's going to be very rocky," he added. "To think that it would somehow go smoothly from here is probably a big leap."
US stock futures pointed to a slight gain at the open Wednesday, ahead of the Fed's decision, after the major indexes closed about 1% lower Tuesday. S&P 500 futures were up 0.28%, Nasdaq futures rose 0.08%, and Dow Jones Industrial Average futures added 0.29%.