Many economists and investors have criticized the Federal Reserve for moving too slowly to combat inflation.
But Scott Thiel, chief fixed-income strategist for BlackRock (BLK), has the opposite concern, he told Bloomberg. Thiel is worried the Fed’s new-found hawkishness could lead to excessive interest rate hikes, hurting the economy.
The central bank has indicated it’s likely to begin raising rates in March, and interest-rate traders now see a 64% chance that the Fed will lift rates by at least 125 basis points by year-end.
Thiel sees the economy as vulnerable, despite growth of 5.7% last year. “This is a restart, not a recovery, and the economy will slow down more quickly as we get back to potential,” Thiel said.
“What’s more, the primary driver of inflation is constrained supply, not an overheating economy. The risk of a policy mistake and over-tightening is increasing.”
Last week BlackRock Investment Institute strategists said central banks can’t stabilize both inflation and growth at the same time, Bloomberg reports. BlackRock concluded they should focus on growth for now and accept some inflation.
Meanwhile, some economists see signs of weakness behind Thursday’s report of 6.9% economic growth in the fourth quarter. For example, most of the growth stemmed from companies increasing their inventories to deal with supply chain disruption. Excluding inventories, GDP expanded only 1.9%.
Consumer spending has pulled back from the torrid pace of the first half of 2021, rising 3.3% in the fourth quarter. Much of the strength came early in the quarter, as consumers rushed to do their holiday shopping while they knew goods were available. Earlier this month, the government reported that retail sales slid 1.9% in December.
