Federal Reserve Chairman Jerome Powell held his last press conference of the year on Wednesday and investors are clinging to his words that inflation is exceeding expectations.
Former Wells Fargo chief economist John Silvia described Powell’s mention that the inflation numbers are higher than expected as the most important takeaway on “The Claman Countdown.”
“They are clearly going to raise interest rates,” he said. “I think the challenge is that bond prices are too high; interest rates are way too low. increase in the future to offset inflation. “
THE FED DOUBLES ITS GROWTH RATE, EXPECTS THREE INTEREST RATE Hikes in 2022 AS INFLATION STILL Rises
In terms of inflation, Silvia said there will be a “long period of adjustment” now that the Fed is forecasting higher figures for the next two years.
Even though investors are bullish after the announcement, Federated Hermes CIO of global equities Steve Auth said the biggest concern for long-term investors was the Federal Reserve accidentally throwing the economy into recession.
“Our biggest worry is that the Fed is so late and so oblivious that it will eventually wake up and really have to plunge the economy into a recession,” he said. “And that would be a premature end of the cycle. So it increases the chances that the cycle will be prolonged.”
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Meanwhile, Auth explained, the bond market appears to be holding up and trusting the Fed, although trusting the Fed “so far hasn’t really been a good course of action.”
Auth advised investing in stocks over bonds, particularly financial and energy stocks which are currently down.
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