Financial instability as the main market risk: Wells Fargo

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A major Wall Street firm ranks financial instability over inflation as the biggest economic risk for the next three months.

In an interview following the Federal Reserve’s quarter-point interest rate hike, Michael Schumacher of Wells Fargo Securities suggested that policymakers are underestimating how rapidly tightening credit conditions could hurt the economy.

“The Fed doesn’t really give enough credence to the idea that a credit crunch means things are getting weaker fast enough,” the firm’s head of macro strategy told ‘Fast Money’ on Wednesday. CNBC.

He estimates it will take a month or two to get clarification on credit terms.

“It’s hard to say right now whether the Fed has tightened enough or too much,” Schumacher said. “That’s why the market has rebounded so much, whether it’s the stock market or the bond market. People are trying to make sense of it.”

On Wednesday, stocks closed at their lowest for the session. THE Dow dropped 530 points, snapping a two-day winning streak. THE S&P500 and very technological Nasdaq also closed lower.

As long as the financial sector can avoid another meltdown, Schumacher thinks the Fed will keep interest rates higher for longer because inflation is still too high.

“We tell customers that the Fed will likely raise rates one more time. [But] not much confidence around that call,” Schumacher said. “We’d be shocked if it was more than that.”

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