The Federal Reserve’s war on soaring prices might not be over yet, according to Bridgewater’s co-CIO. It’s possible that “inflation is a lot stickier than we’d like and the Fed is going to have to tighten more,” Karen Karniol-Tambour said. The central bank is widely expected to raise interest rates for a 10th time in a row Wednesday. Loading Something is loading.
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The Federal Reserve might still not have won its battle against soaring prices even though it’s about to raise interest rates for the 10th time in a row, Bridgewater Associates’ co-CIO has warned.
Karen Karniol-Tambour said Tuesday that the central bank could find itself having to hike rates again in the future if its tightening campaign doesn’t succeed in dragging inflation down to its 2% target level.
“My view is that the economy needs to slow,” she told CNBC’s “Squawk on the Street”. “I don’t know if the tightening the Fed has done is enough to slow the economy sufficiently to really bring inflation back down to what its target is.”
Karniol-Tambour’s comments come with the Fed widely expected to raise interest rates by 25 basis points at the conclusion of its May meeting on Wednesday.
The central bank has lifted borrowing costs from near-zero to around 5% in the space of just over a year – and the vast majority of traders expect it to make the final hike of its tightening cycle this week, according to CME Group’s FedWatch Tool.
But Karniol-Tambour said investors shouldn’t take the Fed concluding its tightening campaign as a given – because there’s a strong possibility that more tightening is required to bring inflation down from its current 5% level.
There’s a scenario where “the economy doesn’t slow that much, more like what is priced into markets, and then inflation is a lot stickier than we’d like and the Fed is going to have to tighten more in order to actually engineer a slowdown,” she told CNBC.
Further rate hikes would likely be bad news for stocks, which have rallied in 2023 thanks to markets’ expectation that the Fed will have paused its tightening campaign by the middle of the year.
That’s because rising rates make it more expensive for companies to borrow money, chipping away at the future cash flows that make up a part of their valuations.
“It’s one of the most dangerous and bad times for risk assets that we’ve seen in decades,” Karniol-Tambour said.
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