Tags: david rosenberg | slowdown | stocks | fed

David Rosenberg: 'Significant Slowdown' to Hit Stocks

By    |   Friday, 30 November 2018 09:32 AM

Investment guru David Rosenberg warns that an “elephant in the room” could send stocks into a tailspin.

The Gluskin Sheff chief economist and strategist warned CNBC that the Federal Reserve's balance sheet reduction —not rising interest rates — could have drastic implications for stocks.

"This is the elephant in the room," he recently told CNBC.

"The Fed doesn't really have to do anything on rates. Just the balance sheet alone is going to create quite a significant liquidity squeeze next year," he said.

"It's uncertain as to whether that causes an outright recession," he said. "But it's certainly going to trigger, I think, a significant slowdown that we're already starting to see in a lot of the credit-sensitive data," he said.

"We're going to be seeing with no fiscal stimulus next year, the peak impact of Fed tightening, the lagged impact, hit the economy and the markets more forcefully in 2019," Rosenberg said. "That will be a major theme."

Rosenberg apparently isn't alone in his concern about the Fed's strategy.

Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Fed to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter told Bloomberg.

Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump, who has blasted Fed Chairman Jerome Powell for raising rates. For his part, Mnuchin has refrained from commenting on monetary policy, citing the importance of the Fed’s independence.

In an Oct. 30 meeting with a Treasury advisory committee that makes recommendations to the government quarterly on its debt sales, Mnuchin asked which they favored -- an accelerated balance sheet run-down or further rate hikes -- if they had to choose one or the other, according to the six people, who asked not to be identified because the conversation was private. One of the people said that Mnuchin asked the question out of curiosity of what bond market participants thought of the two alternatives before the Fed.

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Investment guru David Rosenberg warns that an “elephant in the room” could send stocks into a tailspin.
david rosenberg, slowdown, stocks, fed
Friday, 30 November 2018 09:32 AM
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