Ignore the Fed's inflation warning as it often gets things wrong, says top economist David Rosenberg

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Ignore the Fed's inflation warning as it often gets things wrong, says top economist David Rosenberg
David Rosenberg called both the dot-com and housing crashes.Rosenberg Research
  • Ignore the Fed's warning that interest rates may stay higher for longer, David Rosenberg said.
  • The veteran economist noted the central bank has multiple incorrect calls over the past two decades.
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Federal Reserve Chair Jerome Powell signaled to Wall Street on Wednesday that interest rates could rise further and remain elevated for longer than many expected. However, investors should ignore his messaging given the central bank's long history of getting things wrong, David Rosenberg says.

"Same institution that brought us 'no tech bubble' in 2000, 'subprime contained' in 2007, 'green shoots' in 2009, 'funds rate through neutral' in 2018, 'transitory' in 2021, is now peddling 'higher for longer' in 2023," he wrote in an X post on Wednesday. "Fade the Fed."

In his post, the Rosenberg Research chief pointed to the Fed underestimating the dot-com and housing bubbles, overstating the US economy's recovery from after the financial crisis, and shrugging off the inflation surge following the pandemic as a temporary headache.

As a result, he suggested Powell and his colleagues were dead wrong to believe inflation will remain a problem, preventing them from cutting rates significantly.

Rosenberg, the former chief North American economist at Merrill Lynch who called both the dot-com and housing crashes, underlined his point in a follow-up post on X.

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"Same Fed whose dot-plots were showing in mid-2021 that we would end 2023 with a 0.625% funds rate is now predicting we close the year at 5.625%," he said. "Ooops – did we forget to put in a '5' two years ago?? Lucy, where's that football?"

Rosenberg was highlighting that, only two years ago, the Fed expected its benchmark interest rate to be under 1% at the end of 2023. In reality, inflation soared as high as 9.1% last summer, spurring the Fed to hike interest rates from nearly zero to north of 5%, and pencil in yet another hike later this year.

The veteran economist has repeatedly sounded the alarm on the delayed impact of raising interest rates. He's warned that higher prices and steeper borrowing costs mean consumers are running short of cash, stocks and house prices are likely to slump, and a recession appears inevitable.

Higher rates encourage saving over spending and raise the cost of debt, meaning they can erode demand, prevent some consumers and companies from accessing credit, pull down asset prices, and even cause the economy to contract.

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