Over the past few months, economists and investors have repeatedly blamed the Federal Reserve for waiting too long to try to counter high inflation. But some of those same critics are now saying the central bank is finally on the right track.
I think the Fed is doing all the right things now, reflective of the fact that the Fed didnt do all the right things earlier this year, Sam Zell, the founder and chairman of Equity Group Investments, told CNBC on Thursday.
The billionaire investor said the economy was flooded by capital at a time with near-zero interest rates and low inflation, asking how could you expect that not to create inflation? Zell also mocked the concept of transitory inflation, a term used by some U.S. officials including Fed Chair Jerome Powell earlier this year to say that inflation would be short-lived.
The concept of transitory inflation is pretty awful, he said. I never heard that phrase before and Im sure theyll never use it again.
U.S. inflation rose during the early part of the year to a record high of 9.1% year-over-year in June. Since then, it has slowly declined, reaching 8.2% in September.
In an effort to rein in inflation, the Fed raised rates six times. Its latest hike delivered on Wednesday was the fourth consecutive increase of 75 basis points, lifting the benchmark federal funds rate to a range of 3.75% to 4%.
Still, Zell said the U.S. could still be heading toward a recession.
The likelihood is that were going to have a recession, he said. Frankly, thats what happens when you flood the world with money and everything is freeyou lead to excess, and excess ultimately leads to a recession.
Zell said the Fed must be resilient by continuing to raise interest rates.
I think interest rates are going to move higher from here, he said. Taking interest rates from zero to two accomplished very little. Its only now that were in the threes and fours and on our ways to the fives that were seeing some impact. But its still very early, and I dont think theres any basis for being overly optimistic that this will be done very quickly or without pain.
But Zell also warned of another potential crisis looming.
If you go back to the end of World War II to today, weve had a series of recessions, Zell said. Weve never had a recession without a liquidity crisis, and if I were guessing, I would think a liquidity crisis is the next thing on the agenda.
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