Key Points
- Neuberger Berman portfolio manager Steve Eisman said the Fed would be better off just staying put as the economy shows continuing signs of strength and inflation eases.
- “Why would you cut? My actual fear is that if the Fed were actually to cut rates, the market becomes bubblicious and then we have a real problem,” Eisman told CNBC.
If the Federal Reserve follows through on plans to lower interest rates it could lead to a stock market bubble, in the view of Neuberger Berman portfolio manager Steve Eisman. The central bank last month penciled in three potential quarter percentage point rate cuts by the end of 2023, along with multiple other cuts coming in future years. But Eisman, whose bets against the housing market were profiled in “The Big Short” movie and book, said the central bank would be better off just staying put as the economy shows continuing signs of strength and inflation eases. “My view is the economy is fine. I personally think there should be no Fed cuts this year,” he said during an interview on CNBC’s ” Squawk Box .” “Why would you cut? My actual fear is that if the Fed were actually to cut rates, the market becomes bubblicious and then we have a real problem. So, you know, things are good. The Fed should do nothing and then wait for the data to get weak.” Markets in fact have grown nervous this week as hopes have waned for rate cuts. In an interview Friday, Fed Chair Jerome Powell reiterated that a strong economy and moderating inflation will allow central bankers to be patient in easing monetary policy. A report Monday from the Institute for Supply Management showed the manufacturing sector expanding after 16 straight contractions. However, the report also indicated a growing number of firms showing price increases. The Fed’s preferred inflation indicator showed a 12-month rate of 2.5% in February — or 2.8% at the core level, which tends to get more emphasis from policymakers. Both are above the Fed’s 2% goal. Futures traders Tuesday morning were pointing to about a 60% chance of the first rate cut coming in June, according to the CME Group’s FedWatch indicator, but the data has been volatile lately as markets have tried to read the Fed tea leaves. “Maybe the hardest thing to do as a [portfolio manager] is nothing, because it’s so easy to actually do something,” Eisman said. “It’s the same thing with the Fed. It’s so easy to do something, they can cut whenever they want to cut. The hardest thing to do is just to sit back and say, ‘OK, everything’s fine. Let’s just sit and wait. If things get a little weak, we can cut.'” Markets will have ample opportunity this week to learn more about where the Fed stands. More than half a dozen officials are set to speak on Tuesday alone, and Powell will deliver remarks Wednesday before the Stanford Business, Government and Society Forum. Also on Tuesday, the Labor Department will release its report on job openings for February, followed on Friday by its nonfarm payrolls count, which is expected to show job growth of about 200,000 for March. Eisman said all the data so far indicates no need for the Fed to rush. “There’s still a shortage of jobs, so the consumer is fine,” he said. “It’s a little bear’s porridge in a way. So why would you spoil it by … lowering rates?”