Fed could put US economy in 'very dire situation' with rate hike decision, expert warns
Federal Reserve decides next rate hike decision on Wednesday
US economy faces ‘very dire situation’ if Fed can’t keep rates high: Mike Lee
A 'Word on Wall Street' panel with Michael Lee Strategy's Mike Lee, Strategic Wealth Partners' Mark Tepper, Bulltick Capital's Kathryn Rooney Vera discuss market trends amid banking collapse volatility.
While some of America’s top banking CEOs discuss a new rescue plan and the Federal Reserve kicks off its two-day meeting, one market expert has warned of a "very dire situation" dependent on fiscal policy.
"If the Fed can't keep rates high, if they can't keep raising as they need be, and we have persistently high inflation, we are in a very, very, very, very dire situation," Michael Lee Strategy founder Mike Lee said on "Mornings with Maria" Tuesday.
"So I think the Fed goes 25 basis points. I think how the market reacts depends 100% on what Powell says and reacts to the questions and how the market absorbs that," he continued. "But what I see is not so much as a contagion from banks or some sort of massive solvency crisis, it's what do we do if the Fed can't raise any more, can't keep tightening? It has to ease, so there's no systemic shocks from the banking system."
With a strong market rally underway Tuesday morning, the Fed began discussing its latest interest rate decision. Sixty-two percent of investors expect the policymakers to continue hiking rates, which would mark the ninth straight increase, while 38% expect no change, according to CME's FedWatch.
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While the Fed under Chairman Jerome Powell has embarked on its most aggressive rate hike path since the 1980s to combat stubbornly high inflation, a recent report written by U.S. economists indicates if history is destined to repeat itself, then the Fed will "find it hard" to avoid a recession later this year.
The Federal Reserve could bring the U.S. economy into a "very dire situation," Michael Lee Strategy founder Mike Lee said on "Mornings with Maria" Tuesday. (Fox News)
The central bank is also navigating bank-run contagion fears this week, after the recent insolvencies of Silicon Valley Bank and Signature Bank, and potentially First Republic Bank.
Lee signaled the banking and rate hike dilemmas are ones of "confidence," as opposed to structural issues.
Markets often react when Federal Reserve Chairman Jerome Powell speaks or announces a rate hike decision. | AP Newsroom
"No matter how good the banking laws are, no matter how good the oversight is, no matter how strong your balance sheet is, nobody can withstand a 20 to 25% deposit base withdrawal in a single day, as happened with Silicon Valley Bank," Lee explained.
The Fed to meet this week to decide possible rate hike
Mercatus Center distinguished fellow Thomas Hoenig discusses how the Fed's plan for inflation, argues it has been running poorly for years on ‘The Bottom Line.’
"So I think the upshot of what just happened is lending standards are most likely going to increase, further slowing the economy," he added.
Also joining the "Word on Wall Street" panel, Bulltick Capital’s chief market strategist Kathryn Rooney Vera agreed with Lee that the Fed will likely raise rates by 25 basis points Wednesday.
"It has to hike 25 basis points. It has a dual mandate, 2% inflation and full employment, it has to comply with that. If they do not hike this week, tomorrow, this is going to be a huge additional shock to credibility and they're very focused on that," Rooney Vera said. "So they have to recoup credibility. If they do not hike 25, I think it will be poorly received by the markets."
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US will see 25 basis point hike from the Federal Reserve: Michael Kantrowitz
Piper Sandler chief investment strategist Michael Kantrowitz provides insight on the Federal Reserve's response to record-high inflation on 'Making Money.'
Michael Wilson, the chief U.S. equity strategist at Morgan Stanley and a longtime Wall Street bear, said in an analyst note on Monday that the stock market is in the early and painful stages of exiting the bear market than began in the summer.
"The last part of the bear can be vicious and highly correlated," he said. "Prices fall sharply via an equity risk premium spike that is very hard to prevent or defend in one’s portfolio."
FOX Business’ Megan Henney contributed to this report.