Kevin Mahn, president and CIO of Hennon and Walsh Asset Management, and Brian Jacobsen, Annex Wealth Management chief economist, join ‘Power Lunch’ to discuss the impact of the Fed’s decision. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
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In recent times, there has been considerable speculation about the Federal Reserve’s decision to raise interest rates. Many experts have been divided on whether a small increment of 25 basis points could have serious repercussions on the economy. One such expert, Kevin Mahn, has expressed his concern that such an action could push the United States into a recession.
Mahn, the Chief Investment Officer at Hennion & Walsh Asset Management, believes that the American economy is currently experiencing significant challenges and vulnerabilities. According to him, any move by the Federal Reserve to raise rates, even by a seemingly insignificant 25 basis points, could exacerbate these issues and increase the likelihood of an economic downturn.
To understand the potential consequences of a rate hike, it is important to delve into the intricacies of how it impacts the economy. When the Fed raises interest rates, it essentially makes borrowing more expensive for individuals and businesses. This increase in borrowing costs can have a domino effect on various sectors within the economy.
One of the most significant areas that can be affected by higher interest rates is the housing market. With increased borrowing costs, potential homebuyers may find it more challenging to obtain mortgages, leading to decreased demand for homes. This, in turn, could lead to a decrease in home prices and ultimately weaken the overall economy.
Additionally, higher interest rates can also hinder businesses’ ability to expand and invest in new projects. Many companies rely on borrowing to finance their growth, and with increased borrowing costs, their profit margins can shrink. Consequently, businesses may delay or cancel investments, leading to a slowdown in economic activity.
Furthermore, Mahn points out that the current global economic environment is already fragile. The ongoing trade tensions between major economies, such as the United States and China, have put a strain on global growth. Adding higher interest rates to the mix could further hamper international trade and increase volatility in financial markets.
Mahn’s concerns about a possible recession are grounded in historical evidence. He points to recent instances where a small uptick in interest rates has had a profound impact on the economy. For example, the rate hike in 2000, which came in response to the dot-com bubble, eventually contributed to an economic downturn. Similarly, the series of rate hikes in 2006-2007 played a significant role in the lead-up to the global financial crisis.
In light of these arguments, it is crucial to carefully consider the potential consequences of even a small interest rate increase. The Federal Reserve must balance its mandate of promoting economic growth with the need to contain inflation. In this delicate balancing act, the risks of pushing the economy into a recession should not be taken lightly.
While the decision ultimately rests with the Federal Reserve Board, the concerns raised by Kevin Mahn cannot be ignored. A comprehensive understanding of the economy and a cautious approach to policy decisions should guide the Federal Reserve’s actions. Only through careful consideration and analysis can we hope to navigate the complex economic landscape and ensure a stable and prosperous future for the United States.
Bipan Rai, the North America director of FX strategy at CIBC Capital Markets, expresses a rising apprehension that recent data suggests the Federal Reserve might be slightly lagging in their response compared to their initial expectations for this year. My portfolio is witnessing more losses than gains. I'm curious about how other individuals in this market are achieving gains of over $350,000 within a brief timeframe.
Don’t be so dramatic. 25bps doesn’t do much but “surprise” the equity market who refuse to believe them. The higher for longer mantra is what will send us into recession. The Fed probably won’t cut fast enough. I think they’re okay with that.
We badly need a deep recession to flush out the RE and stock speculators and show them their huge losses. They have been living off the Fed's teat for decades. House prices need to be pushed back to real value and that means a 70% haircut. Stock are still at 6x real value right now. All of this is because of decades of Fed money printing. The Fed has been making the dreams of losers come true for a long time.
Poor people are most affected by inflation. They don't have massive debt available to them, like the middle and upper class does, and who also have stock portfolio's they are worried about.
BINGO, Kevin just hit the mark!
There is no recession in near future. Inflation is a bigger problem. I don’t but the argument that another 25 or 50 basis points can influence Credit card default that much. As long as jobs are strong that’s not a factor
Do it
-Emperor Palpatine
Just change the definition. Seemed to work last time.
I think that's the idea.