Eddie Ghabour, the co-founder of Key Advisors Group LLC, warned on Wednesday that the U.S. is in the “largest bubble of our lifetime,” and it’s going to burst as the Federal Reserve is “going to suck liquidity out of the system.”
Ghabour made the prediction on “Varney & Co.” one day after Federal Reserve Chairman Jerome Powell reiterated his commitment to curbing the highest inflation in decades, indicating the central bank will raise interest rates as high as necessary in order to tame consumer prices.
“What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that,” he said during a Wall Street Journal live event. “If that involves moving past broadly understood levels of neutral we won’t hesitate at all to do that.”
Fed policymakers hiked the benchmark federal funds rate by a half point earlier this month, and Powell has all but promised that two, similarly sized increases are on the table at the forthcoming meetings in June and July. He echoed that sentiment on Tuesday as the Fed races to catch up with runaway inflation and bring it back down to the 2% target.
“This was the worst-case scenario I was hoping was not going to happen,” Ghabour told host Stuart Varney on Wednesday.
“The bottom line is, Powell made it very clear yesterday that they [the Fed does not] don’t care about the market,” he continued.
“They are going to try to get inflation down and there’s nothing they can do in regards to rates, that is, going to bring fuel costs down or food costs down.”
INFLATION SOARS 8.3% IN APRIL, HOVERING NEAR 40-YEAR HIGH
Earlier this month, the Labor Department revealed that inflation cooled on an annual basis for the first time in months in April, but rose more than expected as supply chain constraints, the Russian war in Ukraine and strong consumer demand continued to keep consumer prices running near a 40-year-high.
Price increases were widespread: Food prices have jumped 1% over the month, marking the 17th consecutive monthly increase for that index. The largest monthly increases were in dairy (2.5%, the sharply monthly increase since 2007), meats, poultry, fish and eggs (1.4%) and cereal and bakery products (1.1%).
The slight slowdown in inflation last month came as energy prices declined 2.7%, driven by a 6.1% drop in gasoline (which had climbed a stunning 18.3% the prior month as a result of the Russia-Ukraine war).
Sill, gas prices have been hitting records in recent days, according to AAA.
On Wednesday, the national average for a gallon of gas was $4.56, an increase from the day before and a new record high.
“I find it very hard to believe that we’re not going to take a major leg down and be down at least 30% in the S&P,” Ghabour argued. “I don’t think the average person understands how bad the setup is now, especially with the news yesterday.”
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“This is the largest bubble of our lifetime and they [the Fed is] are going to suck liquidity out of the system, and it’s going to burst,” he stressed, before warning that “we are not even close to seeing what could happen.”
“I’m not saying that to scare anyone, I’m trying to educate folks on what’s happening underneath the hood,” he continued. “We have [a] record amount of corporate debt right now.”
Ghabour provided the insight as U.S. stocks saw steep selling Wednesday as more retailers revealed the negative impact of inflation.
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FOX Business’ Megan Henney contributed to this report.
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