The Fed is 'tone deaf' if it hikes interest rates when a debt default and banking crisis are looming, top economist David Rosenberg says

• David Rosenberg warned the Federal Reserve against hiking interest rates any further.
• "These guys are tone deaf," the veteran economist tweeted on Tuesday.
• Rosenberg said inflation is waning, and flagged a debt default and banking crisis as key concerns.

Veteran economist David Rosenberg has warned the Federal Reserve against hiking interest rates any further, as he believes the inflation threat has faded and the US economy is already facing two big risks.

The banking turmoil that started with Silicon Valley Bank's collapse in March remains unresolved, and First Republic's failure and takeover by CEO Jamie Dimon's JPMorgan this week has reignited worries about broader financial instability.

Moreover, political disagreement about raising the US government's borrowing limit is fanning fears of a debt-ceiling crisis. Banking pressures and the prospect of a debt debacle are good reasons for the Fed to hold off on hiking rates, Rosenberg said.

"We have a possible debt default on our hands and a spreading bank crisis (sorry, Jamie, this doesn't look over), and the Fed is going to raise rates tomorrow. Focused on an inflation rate that is actually LOWER now than it was in July 2008. These guys are tone deaf," he tweeted on Tuesday.

The Fed is widely expected to raise its benchmark rate by another 25 basis points this week. It has boosted borrowing costs from almost zero in March 2022 to about 5% today, the steepest jump since the 1980s.

The central bank has moved aggressively to combat surging inflation, which hit a 40-year high of 9.1% last summer and remained high at 5% year-over-year in March.

Higher rates encourage saving over spending and make debt more costly, which can tame the pace of price increases. But they can also dampen demand, pull down asset prices, and elevate the risk of a recession.

The Rosenberg Research president and former chief North American economist at Merrill Lynch has repeatedly criticized the Fed's laser focus on taming inflation as a mistake, especially since the current rate of inflation is less than the 5.6% in July of 2008, during the Great Recession.

Rosenberg has previously said he expects inflation to cool regardless of what the central bank does, so it's senseless to lift rates any higher.

"I think it's a mistake because inflation is going to come down quite hard in the next 12 months, irrespective of what the Fed does in early May. But they're obviously not going to take any chances," he said in a CNBC interview in April.