A seasoned Wall Street investor is issuing a warning that the Fed’s long battle with inflation is likely not yet over.
In a new interview with Kitco News, Custodia Bank chief executive Caitlin Long says that the Fed will surprise people and continue to raise interest rates.
Long says her prediction is based on her view that inflation is once again rearing its ugly head.
“The FED is going to keep raising rates. I think they’re going to surprise people with how much they’re continuing to raise rates to try to get inflation under control…
I don’t believe the consensus is correct because inflation is picking back up. Those who forecasted inflation to pick back up have been proven right at least in the short term, and there’s some very interesting data underlying what’s going on.”
According to Long, corporate America is still flush with cash as they making the rising interest rate environment work in their favor.
“I used to work with corporate treasurers during my Wall Street career and the corporations locked in low long-term interest rates so they’re probably borrowing at about 2% and they’re earning 5%-5.25% on their cash by just keeping it in T-bills (treasury bills) or money market funds.
So these big corporations are actually getting richer. They’re getting bigger as a result of their really effective corporate treasury strategy.”
While big companies are taking advantage of the Fed’s higher rates, Long goes on to say that other sectors of the US economy are already in the midst of a recession.
“[The recession is] already happening in certain sectors. It’s already happening in the labor markets, but recognize that it’s very tilted, it’s very unbalanced. What I just described, these large corporations getting richer, it’s the old phrase that ‘The rich have assets and the poor have debt.’
As the FED continues to raise rates, the rich are getting richer because they’re the ones that are owning these T-bills that are paying 5.25% risk-free right now.”
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