The Fed is fighting inflation like it's hunting an elephant with a peashooter, investing chief Richard Bernstein says

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african elephants
A tusked African elephant in Kruger National park, South Africa.Getty
  • The Federal Reserve isn't fighting inflation hard enough, according to investment firm boss Richard Bernstein.

  • He compared the Fed's approach to hunting elephants with a peashooter in a CNBC interview.

  • The Fed risks could lead to prolonged inflation and a recession in the far future.

The Federal Reserve isn't fighting US inflation hard enough, according to investment management firm boss Richard Bernstein.

In a Monday interview with CNBC, Bernstein said the central bank's approach to monetary policy was ineffectual and likely to fall short of its goal of cooling down soaring consumer price pressures.

"We think the Fed is hunting, but it's like hunting an elephant with a peashooter. They've got their pitch helmets on, they're out in the jungle, they've got their khakis, they look splendid and they're talking the game, but they're not really fighting," Bernstein added.

What that leads to is prolonged inflation and a recession that doesn't hit until far out in the future as a result of their approach, he continued.

"It's kind of a false dichotomy - hard landing, soft landing - it could be the Fed's not really fighting," Bernstein said.

Last month, the Fed raised its benchmark interest rate by 0.5 percentage points to fight ballooning inflation that is pervading the US economy, a hike double the size of the central bank's typical quarter-point increases. Minutes from recent meetings of the Federal Open Market Committee suggest policy makers are in favor of further hikes of 50 basis points this month and next.

Evidence of the Fed's thinking hasn't come as any surprise to investors, and Michael Hewson, chief strategist at CMC Markets, said investors are already completely prepared for a series of rapid rate rises.

"Markets have already become comfortable with the idea of further 50bps rate rises in June and July, with more rate rises to come, along with discussions about the prospect of moving rates beyond neutral to help constrain above-target inflation," he said in a daily note.

Other leading market-watchers have also criticized the Fed's handling of inflation, including the former Fed chair Ben Bernanke. He said the central bank was too late in tackling inflation, saying that policymakers' patience contributed to the problem.

Now, in addition to raising rates more aggressively than they may have initially planned, members of the FOMC are keen to telegraph the central bank's intention to take a tough line on inflation. As a result, yields on the 10-year US Treasury have topped 3%, having almost doubled since January.

"They're jawboning like crazy but they're still very fearful of tightening too quickly," Bernstein said.


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