The Federal Reserve will regret its interest rate hike in December and will be forced to backtrack in 2016, market watcher Jim Grant warned.
"I think what they are going to do is not what people expect," he told CNBC.
"As [the Fed] read the data, it felt it had to move. It had been saying for so long that it would. It had to and it did. But that doesn't mean it was right to do so," he said.
"They missed their mark," the founder and editor of Grant's Interest Rate Observer told CNBC.
He said the Fed should have increased rates years ago, which would have allowed asset prices to reset, CNBC reported.
"As hard as it might have been, it seems to me a market-driven recovery with price discovery rather than price administration would have been the way forward," he said.
The Fed's easy money policies, including rock-bottom rates and years of massive bond purchases, "postponed the adjustment" in markets that need to happen eventually to make an "economy work more rationally," he said.
Looking at the year ahead, Grant predicted, "weakened consumption, especially for cars, and the manifestation of business failure that was masked or shrouded by these ultra-low rates."
Grant isn't alone in his economic warning.
Marc Faber says the U.S. is at the start of an economic recession, clashing with Federal Reserve Chair Janet Yellen’s view that things are improving.
“I believe that we’re already entering a recession in the United States” and U.S. stocks will fall in 2016, Faber, the publisher of the Gloom, Boom & Doom Report, said in an interview with Bloomberg.
However, some U.S. central bank officials have a contingency plan just in case the economy and market do run into trouble this year.
Federal Reserve Vice Chairman Stanley Fischer said it might be necessary for the central bank to increase interest rates if financial markets were overheating, though the first line of defense should be using regulatory tools to prevent bubbles from developing, Bloomberg
“If asset prices across the economy — that is, taking all financial markets into account — are thought to be excessively high, raising the interest rate may be the appropriate step,” Fischer said in a speech at the annual American Economic Association meeting in San Francisco.
He suggested that might be particularly true in the U.S., where many of the so-called macro-prudential regulatory tools to tackle financial market excesses are either lacking or untested. Such tools would include, for example, adjusting lending rules to try to rein in borrowing.
(Newsmax wire services contributed to this report).
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