The Federal Reserve’s fight against inflation has veteran fund manager Mark Mobius warning that interest rates will soar to 9%.
“If inflation is 8%, the playbook says you’ve got to raise rates higher than inflation, which means 9%,” the co-founder of Mobius Capital Partners told Bloomberg TV on Monday.
While policy makers may not hike so aggressively should consumer prices soften, the 86-year-old investor said he doesn’t see inflation receding “anytime soon.”
The forecast is likely a reference of the Taylor Rule, a model which suggests an optimal policy rate by weighing price pressures and the labor market.
The Fed is under pressure to handle the hottest inflation in 40 years after last week’s reading of September consumer prices came in above expectations. Other inflation readings have also remained elevated despite the Fed’s recent rate increases.
Still, Mobius’s warning goes far beyond what the Fed — and rates markets — now envision. Traders in fed funds futures are pricing in that the rate will peak near 5% in March.