Financial expert cautions Fed's rate hike 'experiment' will have 'unintended' consequences

Jim Grant says adverse effects are surfacing from Fed's 'really long, ill-advised' rate campaign

As Federal Reserve Chairman Jerome Powell prepares to announce the central bank’s next rate move, one Fed watchdog and financial expert warned of "the final consequences" coming for U.S. markets.

"The tension is between the expectation of a resumption in the stock market, a bull market on the one hand, and on the other, the structure of things that were brought about by a dozen or so years of artificially low interest rates," Grant’s Interest Rate Observer founder and editor Jim Grant said Wednesday on "Mornings with Maria."

"Throughout the economy in odd spots," he continued, "there are already surfacing adverse consequences of this really long, and I think ill-advised, experiment in rate suppression."

The Federal Reserve is widely expected to deliver another interest rate hike on Wednesday, resuming its campaign to jack up borrowing costs and crush inflation after a brief pause in June.


The projected quarter-percentage point hike would set the federal funds rate between 5.25% to 5.5%, further restricting economic activity as the borrowing costs for homes, cars and other items march higher.

Fed July meeting impact on markets

Ahead of the Federal Reserve’s July rate announcement, Grant’s Interest Rate Observer founder and editor Jim Grant warned of "unintended consequences" on markets due to an "ill-advised" campaign on "Mornings with Maria." (Fox News)

It would mark the highest rate since 2001 and the 11th increase in nearly a year and a half.

Grant explained how he advises clients when markets buoy in hopes the central bank will end the rate hikes, but the Fed remains focused on tightening the economy.

"The Fed is out to do damage now, having helped to institute, if not to have instituted this inflation," Grant said. "It's like a maniacal motorist, that runs over you with inflation, stops, looks in the rearview mirror, notices that you are still on the street twitching, and then throws it in reverse and gets you again."

"So that's the part of the cycle we're in now," the expert added. "The Fed is ratcheting up rates in the hopes of creating some level of difficulty in the economy."

He further reminded investors of the "lag" impact yet to be seen on U.S. markets since the central bank began its aggressive rate hike campaign. 

Analyzing venture capital, Grant noted "there are a huge number of these so-called unicorns waiting in queue to go public. In the meantime… based upon the most recent funding round, the free market value is much lower than the value attributed to the latest funding round."

"And they will be looking at illiquid positions and perhaps of deep unrecognized losses," he warned. "But interest rates are the most consequential prices in a market economy, and they have been distorted beyond recognition. Ergo, there will be unintended but adverse consequences."


While Grant admitted it will take some time before the Fed’s rate "shock" works its way through the economy, he predicted that inflationary pressures are here to stay.

"We just saw this big new labor settlement that the union was delighted with. So I think the outlook is rather [a] stagflation area, or maybe that's just a nostalgic impulse on my part," the financial expert said. "But I do think that the inflation is rather more deeply set than many are willing to face."


FOX Business’ Megan Henney contributed to this report.