The Federal Reserve’s ninth interest rate increase in a row last week left experts worried about the economic impact—some called it “unnecessary” while others predicted an economic crisis. But one legendary investor, who expects even more rate hikes as the Fed battles inflation, says the economy will be resilient.
“There is no question they are going to continue raising interest rates because the goal of 2% inflation is far away,” Mark Mobius, the founder of Mobius Capital Partners and well-known money manager, said in an interview Sunday with CNBC’s Squawk Box Asia. “We are now looking at what, 5–6% inflation rate in the U.S.”
The Fed’s recent rate hike came after a consistent eight month-drop in inflation since mid-2022. In February, inflation stood at 6% year over year, down from January’s 6.4% and significantly below the four-decade high of 9.1% last June.
According to Mobius, although the Fed will likely continue interest rate hikes, the economy won’t bear the brunt of it.
“They [the Fed] want to continue raising interest rates without necessarily causing problem with the economy,” Mobius said.
“If you look at money supply in America, it’s gone down, but not much,” he said, adding that the U.S. and China still show signs that they are robust. “So, I think we’re in a situation where the economies will do fairly well in spite of the rising interest rates in the U.S.”
The strong money supply, which simply means the amount of money in circulation, coupled with infrastructure and industrial spending by the government, would keep the economy from taking a hit, according to Mobius. He said that the low U.S. unemployment rate reflects this.
Economic woes, maybe?
The veteran emerging markets investor had cautioned in September about an impending recession and said “the picture looks very bad.” At the time, Mobius argued that investors hadn’t priced in the Fed’s incessant rate hikes, which could cause stocks to tumble.
His tone about the general direction of the economy has since changed, as he sounds optimistic about how resilient the U.S. economy has proved to be.
But not all experts share Mobius’s view. Wall Street economist Nouriel Roubini, who predicted the global financial crisis of 2008, said that he expects a “severe recession” and the “mother of all debt crises” to unfold by next year. Meanwhile, billionaire investor Barry Sternlicht said last week that the economy was on the way to “hit the wall” after the Fed increased rates, and predicted a hard landing, when the economy dips into recession as a result of the Fed’s inflation fight.
Ratings agency Moody’s Analytics’ chief economist, Mark Zandi, called the Fed’s hikes disappointing. He said in a tweet last week that although the recent rate increase won’t “break” anything, it still shows how the Fed wants to risk a larger crisis just to reduce inflation.