David Rosenberg says the U.S. Federal Reserve needs to cut interest rates by 50 basis points, citing the knock-on effects of global trade uncertainty and economic slowdowns that will “hit home” for the world’s largest economy.
“This is no time to be complacent, as far as I’m concerned,” the chief economist at Gluskin Sheff + Associates Inc. told BNN Bloomberg in an interview Friday.
His comments come shortly after the release of Fed Chair Jerome Powell’s prepared remarks at the gathering of central bankers in Jackson, WY. Powell said the U.S. economy is in a favourable place and that the Fed will “act as appropriate to sustain the expansion,” adding that “significant risks” remain.
Rosenberg said the U.S. central bank needs to follow suit with other central banks that are cutting rates at a faster pace.
“The U.S. is not some island of prosperity all on its own. It might be a large, closed economy, but the bottom line is it’s still intertwined with what’s happening in the rest of the world,” he said.
“If the Fed just sits on its derriere, what it means is that the U.S. dollar is going to spiral upwards. That’s going to be major constraint on U.S exports and manufacturing activity, which is already hurting.”
He says it’s only a matter of time before these downward pressures reach the U.S. consumer.
“If businesses now are cutting back on capital spending, they will over time be cutting back on a lot of other things, including employment. That’s going to come back and hit the consumer with a lag.”
Rosenberg said Powell will likely face resistance if he does decide to cut rates more aggressively.
“He’s already had two dissents last time just going 25 basis points. I think they should go 50 [basis points],” he said. “But I don’t think he’s got a consensus to go there … I think he still has a long road to go to cobble together a consensus.”
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