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Next Fed rate hike to spark dangerous game in economy: Peter Boockvar


The market’s violent response to hotter-than-expected inflation may usher in additional losses.

Investor Peter Boockvar believes Wall Street is coming to grips with a painful reality: Inflation is not moderating, so the Federal Reserve won’t pivot.

“After next week’s rate hike, we’re going to begin playing a dangerous game with the state of the economy. The following rate hike goes to be only the second time in 40 years that the Fed funds rate goes to exceed the prior peak in a rate mountain climbing cycle,” the Bleakley Advisory Group chief investment officer told CNBC’s “Fast Money” on Tuesday. “We’re moving into treacherous waters.”

In line with Boockvar, a 3/4 point hike at next week’s Fed meeting is virtually a done deal — despite signs of softer commodity prices and used automotive prices slowing down.

“The BLS [Bureau of Labor Statistics] lags in the way it captures that. So, that is why we have now this form of two-lane highway with either side stepping into opposite directions,” said Boockvar. “We rallied 200 S&P points within the 4 days leading into today [Tuesday] since the markets are driving on one side, and the BLS hasn’t yet captured that. Unfortunately, the Fed can also be lagging by way of how they’re reacting to things. They’re driving also with a rear-view mirror form of mentality.”

The main indexes fell to June 2020 lows after the August consumer price index [CPI] rose by 0.1% to eight.3% over the past 12 months. A meaningful drop in gasoline prices did not offset rising shelter, food and medical care costs. In line with Dow Jones, economists thought the index would fall by 0.1%.

The inflation move higher prompted Nomura to officially modified its rate hike forecast. It now expects the Fed to lift rates by a full point at the subsequent meeting.

Boockvar, a CNBC contributor, doesn’t expect the Fed to go that far. Nevertheless, he warns investors will still must cope with the economic consequences from wealth destruction to earnings declines.

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“If labor costs remain sticky, in the event that they proceed to rise at the identical time the revenue side starts to slow within the face of this slowing economy, you are going to have further cuts in earnings estimates at the identical time,” he said. “I do not think this market just ends with a [p/e] multiple at 17x.”

Boockvar believes multiples will ultimately be 15x or lower.

CNBC “Fast Money” trader Brian Kelly also sees more trouble for stocks and the economy, particularly housing.

“We’re just barely seeing the cracks in housing. So, as that starts to come back down, persons are going to feel like they’d less money than they did before… After which, we do not know what that is going to do to the economy,” he said. “This 75 [basis point rate hike] might even be a mistake. We all know there is a lag.”

And, that might even be an excessive amount of for the economy to handle.

“It is a Federal Reserve that might not raise rates of interest 25 basis points in 2018 and truly turned the market right into a convulsion, and ultimately they’d to step back in and start this easing process,” Tim Seymour, one other “Fast Money” trader, added. “We went from a spot where we couldn’t raise rates even in good times let alone difficult times.”

The following Fed meeting is from Sept. 20 to 21.


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