Real estate investor Sam Zell, founder of the private investment company Equity Group Investment, recently discussed the possibility of higher than expected rate hikes, while sharing his thoughts on a potential recession.
What happened: The Fed is desperately trying to make up for being way behind the curve, the billionaire investor said in a recent interview with Fox News.
“We overdid it with the stimulus,” Zell said, adding that there was $7 trillion in borrowing over a relatively short period. The Fed still has a lot of work to do to get things under control, he said. The billionaire investor added that he wouldn’t make too many assumptions about lower interest rates as he believes it needs to ‘rise and stay put’ for a while if inflation is to be beaten .
On whether a final federal funds rate of 5% would do the job, Zell said: “I think 5% is probably the minimum needed to slow the pace of inflation and it will probably take something in the above that.”
When asked if the federal funds rate should be significantly higher than that, Zell replied, “probably closer to six than five.”
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The Fed missed the mark and let “super low interest rates” exist too long, the billionaire said. The central bank finally woke up and decided to take liquidity out of the system and raise interest rates, he added.
“I think it’s in high demand.”
Zell said the real question is whether the Fed raised it fast enough to slow the process down so we don’t have to go too high to get the results we’re looking for. The Fed is aiming for a reduction in inflationary pressure, which has eased somewhat so far, he said.
“It is too early to declare victory,” he added.
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Zell also stated that the chances of a recession are “very, very high“, but it remains to be seen whether the recession is going to be painful or not.
“But it’s very hard for me to believe that we’re not going into an area with much higher interest rates and a lot of people sitting on the sidelines avoiding making commitments,” he added.
Photo: Courtesy of Bill Sofa on flickr