The Federal Reserve is at risk of punishing long-term investors if it focuses on monthly inflation prints instead of a recession.
In a recent interview, the chief economist of Rosenberg Research said that he expects the US central bank to hike interest rates by 75 basis points. As the US economy is under pressure, he called on the Fed to stop hiking.
"I would be pausing and looking at the tightening that's already been put into the system," he said. The economy is flat on its back at the moment.
75 basis points is baked in the cake because the Fed is bent on lagging indicators and inflation is a lagging indicator.
The Consumer Price Index report showed prices rising at a faster rate than expected.
The inflation surprise caused a sell-off in bonds and stocks, with the US 10-year Treasury yield spiking by 15 basis points in a single day.
Longer-term bondholders who are sensitive to changing interest rates will be punished by the Fed.
He said that the Fed penalizes investors for taking on duration risk.
He expects the US economy to come out of a Fed-driven recession once it's experiencing a period of deflation, which will allow policymakers to start advocating interest rate cuts. The financial crisis led to a negative inflation rate in developed economies.
The question is what will get us out of the recession, but we can argue whether it will be deep or mild. We would go back into a deflationary period like we did in 2009.
An investing chief who avoided this week's stock market slide by putting 90% of his assets into cash before the inflation print lays out how to build an 'all-weather portfolio' to endure a long bear market wrote a book on how to build an all-weather portfolio.
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