The largest rate hike since 1994 took place Wednesday as the US Federal Reserve hiked its benchmark interest rate by three-quarters of a percentage point. This begs the question: are there any similarities to Wednesday’s rate hike compared to when Alan Greenspan acted as Federal Reserve chair?
Greenspan served during an era of ‘opportunistic disinflation’
Guggenheim CIO Scott Minerd said on Bloomberg Television following Wednesday’s rate hike announcement that Greenspan oversaw the Fed during an era best described as “opportunistic disinflation.”
What this means is that when the economy “overheated,” the Fed is in a position to temporarily lift rates, Minerd said. This action is followed by a move to bring rates back down as soon as weakness in the economy is observed. He said:
“We don’t have those kinds of choices here,” while adding “I’m not sure what the cure is at this stage.”
Retail sales numbers are ‘very weak’
Coinciding with the Fed’s rate hike announcement, data from the Commerce Department showed US retail sales fell in May by 0.3% while April’s data was revised from 0.9% growth to 0.7%.
Commenting on these numbers, Minerd said May’s data was “very weak” and signals there is a likelihood the US has already entered into a recession. He explained:
If we are in a recession or we are close to a recession and the Fed pushes on this more and then we find that all of a sudden we have a decline in asset prices like stocks did in ‘87 – if the Fed reserves course they are going to look like they are weak on inflation.
Minerd’s final advice to the Fed: send a message it will “crush” inflation “as fast as possible.”
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