The Fed took the punch bowl away when the party was already 'pissed drunk' and now a US recession is a sure thing, says top economist David Rosenberg

• The Federal Reserve acted too late to start battling inflation by raising rates, David Rosenberg said.
• It removed the punch bowl when everyone was already "pissed drunk," the veteran economist said.

David Rosenberg has warned a US recession is now a sure thing, as he criticized the Federal Reserve for going too far, too fast after dragging its heels on cutting stimulus in order to cool inflation.

The chief economist of Rosenberg Research compared the Fed to a bartender that handed out drinks for free, with its overly loose monetary policy during 2020 and 2021.

"Now it's payback time. They are taking the punch bowl away," Rosenberg said in a MarketWatch interview published Monday.

"The Fed's job is to take the punch bowl away as the party gets started, but this version of the Fed took the punch bowl away at 4 a.m. when everybody was pissed drunk."

The US central bank's delay played a part in inflation reaching its recent 40-year highs, and Rosenberg isn't the only strategist to believe it was too late to the battle against rapid price rises.

In August last year, Fed Chair Jerome Powell defended its policymakers' stance that high inflation would be transitory, Rosenberg noted. But very quickly they changed that "effective structural view."

"In March 2022, he went from Bambi to Godzilla. Enough was enough," the economist said, pointing to pressures like the lingering impact of COVID-19, the Chinese pandemic shutdown and the war in Ukraine.

The central bank switched to a campaign of outsized interest rate hikes that have rapidly taken the base rate from near zero to a current range of 3% to 3.25%. The aggressive tightening aims to bring inflation down from its current levels above 8% to the Fed's target around 2%.

The worry for Rosenberg is that the central bank will drive the US economy into a severe economic slump if it overshoots on dampening demand. Other strategists are concerned about the risk of stagflation.

"It's basically a policy of damn the torpedoes, full steam ahead," the veteran economist said. "They're quite prepared to push the economy into a recession. Whether it's mild or not, who knows?"

"They are telling you in their forecasts that they are willing to push the economy into recession in order to slay the inflation dragon. So a recession is a sure thing," he added.

Rosenberg warned the Fed is too focused on data that reflects what was happening in the economy a while ago, rather than now. Reacting to lagging indicators like the annualized inflation rate and ignoring market signals is unprecedented, according to the economist.

"I've never seen the Fed tighten this aggressively into a raging bull market for the U.S. dollar," he said. "I've never seen the Fed tighten this aggressively into a major decline — not just in the stock market, but in the most economically sensitive stocks."