"The Fed could be hiking us into a recession, investor Peter Boockvar warns." This headline appeared Saturday (9/29) on CNBC's web site. Are you scared yet?
You probably shouldn't be. First of all, if you look at the interview, it is hardly a full-blown warning of imminent disaster from Boockvar, though the CNBC header would like you to take it that way. As is the case for many in the punditry corps, it is couched in many disclaimers. For example, Boockvar points out that many recent recessions have been preceded by Fed rate increase cycles.
Of course, this current run of Fed Funds rate increases began almost two years ago in December 2015. The Fed Funds rate target at the time was .25-.50%. The quarter point increase at that time was the first increase in over nine years. With the most recent uptick, the rate range stands at 2.00-2.25%. Much to the chagrin of those forecasting disaster back in 2015, there has been no recession, and the S&P 500 is up 61% (1810-2925). This is also much to the chagrin of those who chose to take those warnings and not to take advantage of the dip caused by that first uptick in interest rates.
Tightening Monetary Policy Around the World
Actually, Boockvar seemed to be more worried about the combination of recent Fed actions and tightening (?) around the world, in Europe and Japan in particular. Both have been into quantitative easing programs (Sovereign Central Bank purchase of Bonds, putting upward pressure on prices, thus keeping rates in those countries lower than they would normally be), and both are now beginning to taper that QE... not buying as much. This tapering needs to happen before the central banks can, like the US Fed, begin the elevation of their country's rate structures.
Also, the Fed is currently in the process of shrinking its balance sheet (selling some of the $4.5 trillion in bonds and mortgage-backed securities it bought after the 2008 debacle). When it was buying bonds, it was taking in about $85 billion in principal amount per month. Now, it is reversing this process, and soon will be taking its sales up to $50 billion per month... theoretically putting upward pressure on rates.
US Tapering of Quantitative Easing -A Disaster?
Not only were there many pundits who thought QE would be a disaster when it was instituted, but many others who forecasted disaster when it was unwound.
This Did Not Happen!
Here is what I wrote in 2013...
The media loves headlines like the title of this post, because "if it bleeds (is negative or sensationalizes, in this case) it leads." It is an attention-getter, not necessarily useful in anyone's investment process. I published Session 41 over five years ago. The worries were the same. "The more things change, the more they stay the same." More noise.
What do you think?