- The Federal Reserve's anti-inflation tightening is going to hit long-risk investors, Scott Minerd said.
- "They're going to push until something breaks," the Guggenheim CIO said. "Eventually, this will end in tears."
The Federal Reserve's anti-inflation program of aggressive interest rate hikes and balance sheet cuts will "end in tears" for some investors, Guggenheim's investment chief Scott Minerd has warned.
Minerd told CNBC on Monday that there's a very good chance the US central bank will overdo its tightening as it tries to prove its credibility — and that could spark selloffs in stocks.
"They're going to push until something breaks," the Guggenheim CIO said on "The Exchange". "I think the break will probably come through, you know, equity prices, but could come in other places — it could come in the emerging markets.
"Eventually, this will end in tears."
That's the danger facing investors who are long risk assets, according to Minerd, who believes the S&P 500 could fall by another 20% by mid-October.
Minerd cautioned the Fed against hiking rates for much longer, and laid out three reasons why policymakers should think twice.
"When you look at the stuff that policymakers should look at, the money supply is contracting, we have inflation that we're looking at in the rear-view mirror, we're not looking at inflation going forward," he said.
"There's a very good chance in their attempts to prove their credibility that they overdo it."
The Fed begins its two-day September meeting Tuesday, and most economists believe it will raise interest rates by 75 basis points when it releases its policy decision on Wednesday. But a small minority have forecast a more aggressive hike after August's hotter-than-expected inflation print of 8.3%.
Minerd forecast a 75 basis point rate increase this week. But he called on policymakers to raise by 100 basis points instead, so that the Fed has less hiking to do at its November and December meetings.
"I think 1% would be better than 0.75%," he said. "There's more hiking to come, so they might as well get it behind them."
Wall Street strategists such as Morgan Stanley's Andrew Slimmon believe US inflation has peaked, which could allow the Fed to wind down its rate-hiking program over the next few months.
Minerd said investors should only start buying stocks again when the Fed stops its hiking cycle, which he expects to happen after its last meeting of 2022.
"People that are talking about a stock market bottom, I would just point out one thing — we have never had a bottom in the market while the Fed is still raising rates," he said.
"The latter part of the fourth-quarter could be a very good time to get into equities," he added.
"My view is that we're gonna go three-quarters this meeting, half-a-point at the next meeting, a quarter at the December meeting, and that would be the end of it."