Want Rate Cuts? ‘Be Careful What You Wish For,’ Josh Brown Warns

The U.S. economy has entered a new paradigm and won’t soon return to low interest rates and inflation, according to Ritholtz Wealth Management CEO Josh Brown, who predicted Wednesday it will take substantial job losses for the Federal Reserve to consider pivoting from its rate hiking program.

“It’s, ‘Be careful what you wish for.’ Are you sure you’re looking for rate cuts? Do you have any idea what those rate cuts would have to be accompanied by? Do you have any idea what the trigger for those rate cuts might be?” Brown said on CNBC’s “Closing Bell: Overtime.”

“That’s why you’re seeing this market-wide preference for stocks that do not necessarily need a Fed pivot. That’s why you’re seeing the value versus growth regime stay in force,” he added.

It will take “millions of people losing their job” for the Fed to pause its rate hikes and start talking about rate cuts, Brown said. “That’s the trigger, 4.5% unemployment, maybe,” he said.

The U.S. Bureau of Labor Statistics reported last month that the unemployment rate in November was unchanged at 3.7%; updated jobs data is scheduled to be released Friday.

While markets had been pricing in Fed rate cuts for later this year, minutes released Wednesday from the central bank’s December policy-setting meeting indicated members anticipate more rate hikes than investors do this year as the panel remains committed to reining in high inflation, Bloomberg reported.

“Everybody wants 2019 back and they’re not going to get it back, and there are structural reasons why,” he said, explaining that people who retired in the last couple of years aren’t returning to the labor force and the participation rate isn’t budging.

“The bargaining power that labor in the services economy has, it’s not changing anytime soon. And so this idea that we’re going to go back to business as usual and we’re going to have 2% interest rates and inflation at 1% and the Fed struggling to get inflation going — that’s a fairytale land from long ago and it’s far away and that’s not what we’re returning to,” Brown said.

“We’re in a new paradigm. Everyone has got to accept it, a lot of people already have but a lot of people have not,” he added. “The debate is going to be how long will it take for us to have felt the full brunt of all of these hikes, and it’s going to be a while. It happens quickly in the mortgage market, but it doesn’t happen on the ground.”

Pictured: Ritholtz Wealth Management CEO Josh Brown