Federal Reserve Chair Jerome Powell testifies during the House Financial Services Committee hearing titled Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response, in Rayburn Building on Wednesday, December 1, 2021.
Tom Williams | CQ Roll Call, Inc. | Getty Images
According to Stephen Isaacs, chairman of the investment committee at Alvine Capital, investors should not necessarily align their investment decisions with the actions of the Federal Reserve.
“The question we have to ask ourselves is ‘should we fight the Fed?’ And I’m actually saying that we should consider that because the Fed is fallible. The Fed has basically been wrong for two years,” Stephens told CNBC’s “Squawk Box Europe” on Thursday.
His comments come at a time when the US is experiencing rapid inflation and a blooming dollarand economists speculate about what the Fed will do next.
Investors around the world will be watching the September jobs report, due later Friday, for further clues about the Fed’s next steps.
Stephens said the Fed took until this summer to really address the US economic situation after it “ignited inflationary fires” towards the end of the Covid-19 pandemic.
The Fed’s benchmark rate was close to zero in March, but has since embarked on the most aggressive series of rate hikes since the 1980s, raising rates to a target of at least 3%.
Stephens said it might be worth making a U-turn from the Fed.
“If the data really changes, if the economic and credit situation that is crucial in the economy really starts to unravel, then the Fed will… turn aggressively. And taking into account the market is so far ahead in the assumptions of many high interest rates , would have a very dramatic effect on asset prices,” Stephens said.
The US is not out of the woods economically, Stephens said, with some “very difficult situations” in the coming months.
“I believe there may be a credit event [in that time]. There could be something that explodes… So that’s the kind of thing I’m really looking for, I’m looking for a trigger point, and I think investors should be looking at that time period to accumulate assets,” Stephens said. .
There has been a lot of talk in recent months about a so-called Fed pivot, with Anastasia Amoroso, chief investment strategist at iCapital, saying on Tuesday that investors should not expect the Fed to flip any time soon.
— CNBC’s Hugh Son contributed to this report.