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Morgan Stanley's Gorman: Fed Should Lift Rates by Q1 2022

'You’ve got to prick this bubble a little bit,' he told Bloomberg. 'Money is a bit too free and available right now.'

Morgan Stanley CEO James Gorman says the Federal Reserve should raise interest rates by the first quarter of 2022.

“You’ve got to prick this bubble a little bit,” he told Bloomberg Thursday. “Money is a bit too free and available right now.”

Stocks have almost doubled since March 2020. And bond yields aren’t too far from record lows.

Half of Fed policymakers have indicated they expect a rate hike next year, with the other half expecting 2023.

Rising wages, supply-chain disruption and booming commodity prices are pushing inflation higher, Gorman noted.

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Consumer prices soared 5.4% in the 12 months through September. And the Fed’s favored inflation indicator, the personal consumption expenditures index, climbed 4.3% in the 12 months through August.

Unlike many Fed officials, Gorman doesn’t see this inflation as transitory, so the Fed should be ready to raise rates, he said.

“Certainly by the first quarter of next year I’d start moving,” Gorman said. “They have got a lot of capacity to move. … And by the way, we are 10 rate increases away from what would be considered normal.”

The Fed-controlled federal funds rate on interbank loans stands at a record low of zero to 0.25%.

BlackRock CEO Larry Fink and JPMorgan Chase CEO Jamie Dimon also expressed concern about inflation this week.

Meanwhile, Goldman Sachs says that if fears of stagflation continue to grow, stocks with pricing power will likely thrive. It lists a slew of names, including Nike  (NKE) - Get NIKE, Inc. Class B Report, Phillip Morris  (PM) - Get Philip Morris International Inc. Report, 3M  (MMM) - Get 3M Company Report and Adobe  (ADBE) - Get Adobe Inc. Report.