Investor Kevin O’Leary warned that inflation remains a greater threat to the U.S. economy than the financial markets want to admit, while arguing that aggressive political pressure on the Federal Reserve risks undermining the country's global credibility.
Inflation: A ‘Hidden Tax’
On Sunday, O’Leary, popularly known as “Mr. Wonderful,” noted that inflation was “still north of 3%,” while warning that it is “a hidden tax on every American,” when asked whether he thinks the Federal Reserve will cut interest rates this week, on Fox Business’ “The Big Money Show.”
He cautioned that “if we push the Fed to lower rates while inflation is rising, we risk a policy disaster,” adding that “the Fed must stay independent,” to maintain U.S. credibility among global investors.
O’Leary said that he does not expect the central bank to cut rates in the near term, pointing to its “dual mandate” of ensuring full employment and long-standing “two percent” inflation target.
He also pointed to tariff-driven cost pressures as a factor complicating the inflation picture. “Everybody debates the tariff thing,” he said, but warned that when the U.S. tariffs commodities it does not produce domestically, “it's 100% inflationary because we don’t have it, so we’re making ourselves pay more.”
He listed “potash,” “bauxite for aluminum,” “pineapples” and “bananas” as examples where policymakers “gotta fine-tune the tariffs.”
The broader risk, he argued, is lowering rates while inflation is still accelerating. “If you don’t get it under control and you lower rates while inflation is actually increasing, you risk a policy disaster,” he said. “And I don’t think the world wants to see that.”
Discussing the growing political pressure on the Fed, O’Leary said, “Fed-bashing is a sport, I love to watch it,” while adding that the central bank “should be” independent from the executive.
He concluded by saying that even if the Fed does move interest rates, it “won’t be anything more than 25 basis points,” considering the current inflationary scenario.
Rate Cut Odds Soar, But Officials Warn of Risks
The probability of a 25-basis-point rate cut during the Federal Open Market Committee’s meeting on Tuesday has soared to 87.2% according to the CME Group’s FedWatch tool.
This comes amid the Core Personal Consumption Expenditure price index, which is the Fed’s preferred inflation gauge, cooling slightly from 2.9% to 2.8%, coming in just below expectations at 2.9%, even as consumer spending has continued to surge by $65.1 billion, or 0.3% in September.
Despite this, former Kansas City Fed president Tom Hoenig believes that the central bank is about to make a mistake by cutting rates.
“The economy is doing reasonably well,” he said, with unemployment still hovering around 4.1%, so he sees no reason for easing when the “inflation dragon is still breathing fire.”
Read More:
Photo courtesy: Kathy Hutchins / Shutterstock.com
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
