Morgan Stanley CEO James Gorman said that the Federal Reserve should raise interest rates sooner than later. The current economic growth remains strong, so the Fed should hike rates to combat a future downturn.
Morgan Stanley CEO James Gorman Expects Feds To Combat Downturns
Speaking ahead of the Fed’s two-day policy meeting, CEO James Gorman said he expects the federal agency to start serving notice. He expects the Federal Reserve to tighten money beginning 2022.
Speaking with CNBC’s Wilfred Frost on “Closing Bell,” James Gorman said the country is headed for an interest rate hike. “We are heading toward a rising interest rate environment,” Gorman said.
“I felt the Federal Reserve would be better off storing away some of the rate increases,” he said. “So when the inevitable downturn comes, you’ve got some ammunition to fight with,” Gorman added.
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Federal Agency Indicates A Policy Pivot
The past few days, Federal Reserve Chairman Jerome Powell gave strong indications of a policy pivot soon. The Fed is currently allowing inflation to run up until the labor market settles down.
However, the inflation rates are spiraling out of control. Consumer prices are currently at their highest levels in 40 years.
As a result, officials said they are ready to remove the easy monetary policies placed during the pandemic.
The Federal Reserve will start drastically cutting down on its monthly bonds purchases. Experts expect the Federal Open Market Committee to double its planned tapering from $15 billion to $30 billion a month.
Reducing bond purchases can allow the Federal Reserve to start hiking interest rates as early as March 2022. Markets will feel the first wave of rate increases more likely by May.
James Gorman Said Federal Reserve Is 10 Rate Increases From Normal
Additionally, James Gorman said that the Federal Reserve is currently “10 increases from normal”. This is in reference to the fact that the present interest rates are neither too loose nor too tight.
“If I were the Fed, I would start moving earlier rather than later. Store away some ammunition and accept the reality,” Gorman said.
Rather than slow the recovery, Gorman said the interest rate increase can stabilize the economy. However, doing so might upset financial markets temporarily. “I don’t think it derails the economy. This is what you need, you need balance in the economy,” he explained.
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Federal Reserve Policy Meeting This Wednesday
Meanwhile, the Federal Reserve is gearing up for its two-day policy meeting beginning Wednesday. Stung with higher-than-expected inflation but encouraged by lower unemployment, the agency is set to raise interest rates.
Hikes will apply next year as policymakers will try to agree on how much borrowing rates should go for. They will also vote on how soon the new rates should apply.
Federal Chairman Jerome Powell already assumed that the rate-setting committee will announce this week that it will taper its bond-buying program.
It will also announce that it will end its program by March instead of the original target of June. This will clear the way for the agency to raise interest from its current near-zero rate.
Watch the Inside News video Morgan Stanley CEO Gorman calls for the Fed to raise interest rates soon:
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