Veteran investor and bitcoin bull Michael Novogratz doesn’t have a rosy outlook on the economy, which he described as headed for a substantial downturn, with the likelihood of a “fast recession” on the horizon.
“The economy is going to collapse,” Novogratz told MarketWatch. “We are going to go into a really fast recession, and you can see that in lots of ways,” he said, in a Wednesday interview before the Federal Reserve decided to undertake its biggest interest-rate hike in nearly three decades.
“Housing is starting to roll over,” he said. “Inventories have exploded.”
“There are layoffs in multiple industries, and the Fed is stuck,” he said, with a position of having to “hike [interest rates] until inflation rolls over.”
Central-bank policy makers agreed to deliver an unusual 0.75-percentage-point rate increase, concluding a closely watched two-day policy meeting with a move that would push the Fed’s benchmark federal-funds rate rising to a range between 1.5% and 1.75% as it steps up the effort to quell an inflation rate that is hovering around a 40-year high.
It was the largest increase in the central bank’s policy rate since November 1994.
Before the Fed announced its decision, Novogratz speculated — accurately, it turned out — that the central bank would lift interest rates by 75 basis points and that the market would rally on that news. He also predicted that stocks will sell off in the coming days.
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CHICAGO – Smart economic policymaking invariably requires trading off some pain today for greater future gains. But this is a difficult proposition politically, especially in democracies. It is always easier for elected leaders to indulge their constituents immediately, on the hope that the bill will not arrive while they are still in office. Moreover, those who bear the pain caused by a policy are not necessarily those who will gain from it.
That is why today’s more advanced economies created mechanisms that allow them to make hard choices when necessary. Chief among these are independent central banks and mandated limits on budget deficits. Importantly, political parties reached a consensus to establish and back these mechanisms irrespective of their own immediate political priorities. One reason why many emerging markets have swung from crisis to crisis is that they failed to achieve such consensus. But recent history shows that developed economies, too, are becoming less tolerant of pain, perhaps because their own political consensus has eroded.
Financial markets have become volatile once again, owing to fears that the US Federal Reserve will have to tighten its monetary policy significantly to control inflation. But many investors still hope that the Fed will go easy if asset prices start to fall substantially. If the Fed proves them right, it will become that much harder to normalize financial conditions in the future.
Investors’ hope that the Fed will prolong the party is not baseless. In late 1996, Fed Chair Alan Greenspan warned of financial markets’ “irrational exuberance.”…
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