O’Leary says the Fed could still increase rates to 6.25% or 6.5%, resulting in bank failures in regional institutions.
Popular Shark Tank investor Kevin O’Leary has sounded a note of warning about the Federal Reserve’s tightening cycle applied to fight inflation. According to O’Leary, the Fed’s continuous rate hikes could result in more US bank failures.
Speaking to CNBC’s Street Signs Asia, O’Leary said that the hikes could cause a breakdown in regional banks, suggesting the situation would become precarious because the banks support 60% of the US economy. Following the recent rate hike, O’Leary said:
“You keep squeezing the toothpaste tube, you keep rolling it up, you keep raising rates, and you know things are going to break, you just don’t know when and where.”
On Wednesday, the Federal Reserve increased interest rates by 25 basis points to keep up with the fight against inflation. The recent increase puts the current rate at a range of 5.25% – 5.50%. The range’s midpoint is the highest US interest rate since 2001.
In 2023 alone, the Federal Reserve has increased interest rates four times. Last year, the Federal Open Market Committee (FOMC) began increasing rates on March 17, the first increase in more than three years. By the end of 2022, the Fed had increased rates seven times.
Predictions for Future Hikes Give Credence to Warning on Bank Failures
Following Wednesday’s increase, Fed Chairman Jerome Powell hinted at another hike after the next FOMC meeting scheduled in September. Powell said a further hike might be necessary because the rate is too far from the intended 2%. However, he assured that the agency would be “making careful assessments” and may choose to leave rates unchanged at the next meeting depending on economic data.
O’Leary says he has told investors to wait 90 days as events unfold in the United States banking arena, as he predicts a possible crash. O’Leary also added that the Fed could continue hikes before stopping at 6.25% or 6.50%.
This prediction rhymes with previous forecasts about the rise of interest rates for the rest of the year. According to an exec at the world’s largest asset manager BlackRock, there’s a chance the Fed could take rates up to 6%. In a February note, the company’s chief investment officer of global fixed income Rick Rieder said the Fed would likely keep the rate there for “an extended period” until inflation falls near 2%.
Also in February, Coinspeaker reported that Wall Street traders were betting that the Fed would hike rates to 6% in September. One trader placed a bet worth about $18 million and could walk away with up to $135 if the prediction comes to pass. In the same month, BofA Global Research also made the same prediction. According to a note, the researchers said the Fed might struggle with inflation for much longer because of a tight labor market and consumer demand. The note suggests that aggregate demand must fall significantly before inflation drops to the Fed’s target.
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