'Rip off the band-aid': Wells Fargo makes the case for a 150 basis point hike at Fed meeting (via CNBCFastMoney)
"The Fed knows what the destination is. So it's got the funds rate now, the upper bound, is 2.5%. Very likely it gets to 4%-plus this year," the firm's head of macro strategy said on Tuesday. "Why not just rip off the Band-Aid. Let's get there in one day. But of course, the Fed won't do that."
He acknowledges it would be a tough maneuver to pull off without violently shaking markets. The key is policymakers need to convince investors the historical jump in rates is frontloaded, according to Schumacher. "It would do a huge move and then stop or stop pretty soon. 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? We've better get out of the way,'" said Schumacher. "It would require incredibly good communication and confidence or the result: Carnage. And nobody wants that.
the Street believes the Fed will lift rates by 75 basis points on Wednesday. It would be the Fed's fifth hike this year.Schumacher believes the Street has the September meeting rate forecast right. But he warns it's likely Powell will be more hawkish during Wednesday's news conference due to hot inflation.
"When you consider the last 10-plus years, we've had incredibly easy monetary policy for most of that time. Super-stimulative fiscal policy in a lot of cases, especially the U.S. So, doing a very quick U-turn — I suspect it's going to be very rocky. It has been rocky already," noted Schumacher. "To think that it would somehow go smoothly from here is probably a big leap.
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