While speaking to CNBC, Shark Tank investor Kevin O’Leary said that interest rate hikes could lead to more failures among regional US Banks. The Federal Reserve recently raised interest rates by 25 basis points in its battle against inflation. Inflation in the US is still above 3%, higher than the Fed’s 2% annual target. US Federal Reserve Chair Jerome Powell said that the Fed is not confident that inflation is over.
Also Read: FED Raising Interest Rates by Another 25 Bps
Kevin O’Leary, aka Mr. Wonderful, compared the increase in rates to that of squeezing a tube of toothpaste. He stated that “You keep rolling it up, you keep raising rates, and you know things are going to break.”
O’Leary predicted that raising rates “will break down in the regional banks, which support 60% of the economy.” He further added that the rising cost of capital is “killing them on their real estate loans.”
Where does Kevin O’Leary think rate hikes will stop?
According to the renowned investor, “Terminal rate, where the Fed stops, could be 6.25, could be 6.50.” He further urges people to “think about this if you think about the long term and the short-term effect.”
O’Leary’s estimates are higher than the Fed’s current median end-of-2023 forecast of 5.6%, as of the June meeting. Moreover, O’Leary’s prediction is also higher than the most hawkish estimates of 6.1%. The figure is an estimate from the Fed’s latest summary of economic projections issued in June.
Also Read: U.S. Economy To Reach Hyperinflation if BRICS Becomes Global Currency
Although inflation in the US is cooling, it is still above the Fed’s target. The latest hike was the 11th rise in the 12 last meetings. Fed Chair Powell has said that there might be another round of rate hikes in September 2023.