“We believe the U.S. economy can sustain strong performance next year, but it can ill afford a major policy error, either from the Fed or the rest of the administration. Given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity,” Drunkenmiller said.
The S&P 500 is down 11 percent and counting from its record high hit earlier in the year as recession fears mount. Bank stocks have led the decline with the financial sector in the S&P 500 down more than 20 percent over that same time span. Other economically sensitive sectors, like housing, transports and industrials, are down by double digits, underperforming the broader markets, Drunkenmiller pointed out in the op-ed.
Markets are now foreseeing a 78 percent chance of a hike when the Federal Reserve meets Wednesday and a 38 percent probability of a move anytime in 2019, according to the CME’s tracker. The Fed has forecast three hikes for 2019, but recent dovish comments from Fed officials and a more tempered view of the economy for next year could make them rethink their rate path.
“The Fed should stop this option-limiting exercise entirely. And if data dependence is the Fed’s new mantra, it should actually incorporate recent data into its forthcoming policy decision,” Drunkenmiller added.
Click here to view The Wall Street Journal op-ed.