- Interest rates could hit 9% as part of the Federal Reserve’s efforts to bring down inflation, Mark Mobius told Bloomberg TV.
- if inflation is 8%, “the playbook says you’ve got to raise rates higher than inflation,” he said.
- Investors are pricing in expectations for the fed funds rate to reach 5% in 2023.
Billionaire investor Mark Mobius sees US interest rates kicking up to 9% as part of the Federal Reserve’s efforts to get high inflation under more control.
“I see interest rates in America going to 9% simply because if inflation is 8%, the playbook says you’ve got to raise rates higher than inflation,” the founding partner of Mobius Capital Partners told Bloomberg TV.
Bloomberg said Mobius’ forecast is likely a reference to the Taylor Rule, a formula developed by Stanford economist John Taylor that prescribes how a central bank should shift interest rates to account for inflation and other economic considerations.
But Mobius’ projection stands well above where investors and the Federal Reserve itself expect rates to go in the central bank’s aggressive rate-hike campaign.
Investors are pricing in expectations for the fed funds rate to reach 5% in early 2023, according to the CME FedWatch Tool. The Fed’s Summary of Economic Projections released in September showed policy makers expect to raise the benchmark rate to peak of 4.6%.
The Fed is expected to raise interest rates by 75 basis points in November and possibly again in December. Policy makers have already pushed the fed funds rate to a range of 3% to 3.25% from near 0% this year. US stocks have dropped into a bear market as borrowing rates rocket higher and investors fret about the potential for a Fed-induced recession.
The widely watched 10-year Treasury yield recently rose to 4%, the highest since 2008, and the short-term 2-year yield was propelled past 4.5% for the first time since 2007. The yields at the start of the year were at 1.6% and 0.76%, respectively.
Mobius said his outlook for rates “will go out the window if CPI goes down, but I don’t see that happening anytime soon.”
Investors were dealt a blow on the inflation front last week. The core Consumer Price Index — an inflation measure excluding volatile food and energy prices — rose 6.6% in the year through September, the fastest price growth since 1982. Economists polled by Bloomberg had expected a reading of 6.5%. Rising shelter prices were a large contributor to September’s increase. Headline inflation was 8.2%.
Mobius, a pioneer in emerging-markets investing, also said he would sell companies with a high debt-to-equity ratio and companies with a low return on capital. “Anybody sitting on high debts are going to be in trouble because of the higher interest rates.”
