‘Big Short’ Investor Steve Eisman Predicts Fed Flips Hawkish in 2024, Says US Banks May Pay the Price
Steve Eisman, the investor famous for predicting the 2008 housing crisis, believes that the Federal Reserve (Fed) will not cut interest rates this year as many people expect. In an interview on CNBC’s Fast Money, Eisman warns that major US banks could suffer if the Fed remains hawkish in 2024.
Bank of America’s Earnings Problem
Eisman focuses on Bank of America as an example, stating that while it is a well-run bank with a good CEO, it has made mistakes. The bank bought a significant number of long-term bonds at the wrong time in the economic cycle, resulting in an earnings problem. The bank’s earnings have remained relatively flat in recent years. To make money from Bank of America, Eisman suggests two things are needed: a rate cut by the Fed to improve people’s perception of the bank’s balance sheet, and no recession with benign credit. However, he believes the Fed is unlikely to cut rates this year due to concerns about rising inflation.
Eisman’s View on the Fed
Eisman disagrees with market expectations of multiple rate cuts by the Fed this year. He believes that the Fed is still wary of repeating the mistake made by Paul Volcker in the early 1980s when inflation spiraled out of control after rates were lowered. Eisman’s lack of optimism regarding rate cuts leads him to believe it will be challenging to make long-term investment cases for major money center banks due to various macro factors.
Hot Take: US Banks Face Uncertainty Amidst Potential Hawkish Stance
Steve Eisman, known for his accurate prediction of the 2008 housing crisis, suggests that US banks could face difficulties if the Federal Reserve maintains a hawkish stance in 2024. Eisman highlights Bank of America as an example of a well-run bank with an earnings problem due to its purchase of long-term bonds at an unfavorable time. He emphasizes the need for a Fed rate cut and a recession-free environment for banks to thrive. However, Eisman believes that the Fed is unlikely to cut rates this year due to concerns about rising inflation. This could pose challenges for major money center banks, making it hard to find long-term investment opportunities in the sector.
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