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Morgan Stanley says Fed need to increase rates
“If I were the Fed, I would start moving earlier rather than later,” he said.

With economic growth currently strong, the Federal Reserve should raise interest rates soon to combat a future downturn, Morgan Stanley CEO James Gorman said Monday.

Speaking a day before the central bank begins its two-day policy meeting, the head of the Wall Street powerhouse said he expects policymakers this week to telegraph monetary tightening in 2022.

“We are heading toward a rising interest rate environment,” Gorman told CNBC’s Wilfred Frost during an interview on “Closing Bell.” “I felt the Federal Reserve would be better off storing away some of the rate increases, so when the inevitable downturn comes, you’ve got some ammunition to fight with.”
Investors are anticipating the U.S. central bank will say later this week it plans to wrap up its bond purchases sooner than expected. They are looking for clues on the timing of possible interest rate rises next year.

The Fed had been willing to allow inflation to run hot until employment had fully recovered. However, with consumer prices at their highest levels in nearly 40 years, officials have said they are ready to pull back on some of the ultra-easy measures put in place during the Covid crisis.

First, up will be accelerating the pace at which the Fed is cutting back its monthly purchases. The Federal Open Market Committee is widely expected to double the tapering to $30 billion a month.

That would allow the Fed to begin hiking rates as soon as March 2022. Although markets see the first increase likely happening in May.

Image: Livemint.com

Morgan Stanley’s economists expected – until late last week – the Fed to stand pat without hiking even once in 2022. That changed over the weekend, however, when the bank admitted “defeat” and now expects two rate hikes in 2022, even as the bank’s chief market economist Michael Wilson sees the S&P closing 2022 at 4,400, some 5% below current levels.

“If I were the Fed, I would start moving earlier rather than later. Store away some ammunition and accept the reality,” Gorman said.
“I don’t think it derails the economy. This is what you need, you need balance in the economy,” he said.
Gorman, 63, has been the chief executive of Morgan Stanley since 2010. He steered the business back to health after the 2007-09 financial crisis. Earlier in the year, he said he anticipated staying at the helm for another three to five years.
Asked about succession plans, Gorman highlighted the strength of potential candidates within the bank to succeed him.

“We’ve got terrific executives who could replace me. We need to get a few of those ready for the board. That will take a couple of years but I believe in succession and I believe in planning. We’ve got some fantastic executives and I’m confident the place will thrive under them,” he said

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