As stock market plunges, a star money manager says the Fed is making a mistake by raising rates. Here's what Scott Minerd says it should do instead.

The Federal Reserve is under the gun as the market plunges ahead of its first rate-setting meeting of 2022, and at least one star money manager says that the central bank could be making a policy error by focusing on raising rates.

Minerd, however, makes the case that the Fed should be fixated almost exclusively on a reduction its balance sheet, which currently stands at around $8.7 trillion. “Interest rates are the byproduct of monetary liquidity, economic output, and inflation expectations. Short term market rates can be manipulated through changes in the stock of money,” he writes.

“That facility now has daily volume of over $1.5 trillion,” writes Minerd. “Any program to raise rates will require the Fed to raise the rate of interest paid on RRP operations by the amount of the increase in the overnight target rate,” he said.

Translation: “Screw the consumers. The stock market is more important.” — Arresting inflation by raising rates is more important.

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