Program:  Cavuto Coast to Coast

Date:  6/15/2022

Station:  Fox Business News

Time:  12:00PM

NEIL CAVUTO: All right. You know, a little more than a week ago, the odds of anything as wacky as a 75 basis point hike in interest rates seemed so low. In fact, it represented about a 3% possibility in people who trade on this sort of stuff. The overwhelming majority betting on on a half point hike. That has completely flipped now, better than 90% betting. That is what we will see today. The overnight bank lending rate known as federal funds increased three quarters of a point. There’s a very small sector of that group insisting that it will be a full percentage point. I don’t know where our guests are on that, but let’s get right to it, because we’re minutes away from that Fed announcement. Michelle Schneider joins us. The Market Gauge Group managing director Ray Wang is back with us. Constellation Research CEO. Everybody wants to rule the world. Ray already is ruling the world, so we just thought he’d throw that into the title. Scott Martin of Kingsview Asset Management, the CEO, Fox News contributor, ruling the the world for young people who want to understand how this whole market stuff works. Welcome to all of you and thank you for joining us. We’re minutes away from a rate hike, Michelle, that we know, but will it be three quarters of a percent?

MICHELLE SCHNEIDER: My guess is that it probably will be a half a percent, but it really at this point doesn’t matter because there’s a few givens. A We are in a bear market. B Certain areas of inflation, we’re seeing cooling already, auto housing market. And C, is is that even if we do get some kind of a relief rally and some some kind of bigger hike in interest rates, we cannot cause certain types of inflation, which is the supply side and more side inflation, which basically affects food. That’s not going to be any.

CAVUTO: You see a half point hike. Right. I know it’s not crucial to you, but you see at least a half point, you’re not in the three quarter percent hike.

SCHNEIDER: I don’t think so now.

CAVUTO: Okay. Where are you on this, Scott?

SCOTT MARTIN: Three quarters and I’ll go. The tears for fears are out. Neil, one of my favorite bands of all time who I think is on tour again, by the way. So pick up tickets if you can. I’ll shout it out. I’ll shout it and tell them they need to do 75. And I disagree with Michele. I think this does matter. She’s right about the supply chain concerns. There’s supply and demand. Demand is cooling, but the market is in such a weird, frisky, emotional state. The market, especially the bond market, are old friend. The bond market that was so gentle, so peaceful and now freaking out needs to see the Fed take a stand. I mean, I’m so excited about this. I’m so wrapped up in this meeting. I combed my hair. I went into the studio because they need 75. The market’s told them 75. Anything less than that huge sell off.

CAVUTO: Wow. Okay. So if it is three quarters of a point and if the Federal Reserve were to follow up with such aggressive rate hikes, at least in the next two, possibly three meetings, now you’re talking, you know, a Fed funds rate that approaches 3% could be four and one half percent by the end of the year. What is an acceptable level?

RAY WANG: Building on the chairs for theosophy. Erskine That would be a mad world. And we’d probably see mortgage rates on 30 year side hitting seven and a half, which would take us probably to almost like 2000 to 2001. So, but, but it is likely, right? I think we do need the shock and I think it’s going to quell some of this. But, you know, it is definitely a supply issue. I mean, this is a supply side issue. And I think if we don’t solve that piece, we’re going to be in trouble. And I think that’s.

CAVUTO: Going.

WANG: We’ll probably see those two rate hikes.

CAVUTO: Okay. I apologize for jumping on you, my friend. Michelle, is this a rich market to you right now? With all the drubbing it’s taken, you could still make the argument it is still rich. It’s still trading at multiples that are north of where they normally should be. And that’s after the selloff we’ve had. Where are you on this?

SCHNEIDER: Well, yes, we have valuations and PE ratios that were historical highs and a lot of the companies that bought back their own stocks through the years and enjoyed zero interest rates and low taxes are going to suffer as a result. And we don’t really know what fair valuation is, but I just want to explain that the supply side inflation, that rage is talked about, it doesn’t really matter at this point what the Fed does about the interest rates. You can’t control things that cannot be produced like food, like energy at this point. And so it doesn’t matter whether they go 75 or 50. And I just want to explain that we are in a bear market. The inflation is going to continue, particularly where it hurts the most. And yes, valuations are definitely still bloated and we don’t really know what fair value is. Maybe that’s the most exciting thing about this. At some point we will be able to establish what actual fair value is if you’re a believer and free market ultimately.

CAVUTO: You know, you can talk about it not having an impact on food prices, but you could argue just the opposite as well. It’s got I mean, you could start saying that people heretofore were buying expensive cuts of meat or whatever or are pivoting to cheaper cuts or or, God forbid, going vegetarian. That’s a whole separate issue. But the people will, in the face of those higher costs, start making these tough decisions. Therein lies the fear of stagflation, that the higher prices beget a slowing economy. Where are you on this?

MARTIN: I agree. I mean, going plant based. Yeah. And driving less. Flying less. I mean, I think Michelle’s right. I mean, it is a supply issue, but the demand side is totally part and parcel of that, too. So, Neil, I think the higher rates curtail the demand and the market though, this is going to sound totally crazy and overkill warning here. The market is going to be head over heels. Another one of my favorite Tears for fear songs. If the Fed gets a hold on inflation, they’ve played this too light. They have played this way too easy. And now they got way behind the curve. And the market is begging them to do something stark here. And so if they do that, the market’s going to start to rebound, I believe, because the inflation is the number one concern right now, both on the supply side, as Michelle pointed out, but also on the demand side. And the demand side will be curtailed if the Fed starts to be hawkish here.

CAVUTO: You know, I think something has changed here and I defer to you. You’re all experts. But as you know, I qualify as one because I read a prompter, so enough said. But having said that, that this is Jerome Powell’s Paul Volcker moment, I think he now aspires to be that blunt, that rough, that tough, and the cautious Jerome Powell might might not be around any longer. And I don’t know how that plays out. But if if he is Paul Volcker, then we are in for some aggressive rate hiking, aren’t we

WANG: We are, and we do need a Paul Volcker here, but we also need a Ronald Reagan to come back in and cut regulation. And we need to be able to open up markets and drive down food prices and make sure that we’re safe and secure and we feel well about that. And also open up energy, right? If we were to do some of that, I think we could cover both ends. It’s not an either or. The Fed is just one aspect of it. But there’s regulatory issues, there’s policy implications that are not being put to the test. And if we go back to some of those policies that would actually drive down cost and be deflationary, we’d probably be in much better shape than just relying on the Fed on this.

CAVUTO: All right, guys, I wish we had more time. We don’t. We’re very close. 30 seconds away. To Lauren Simonetti taking over in the next hour.

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