Tom Lee warned that the Federal Reserve's latency in adjusting policies could trigger market turmoil.

Gate News bot reported that according to Cryptodnes, Fundstrat research director Tom Lee issued a warning about the rise in risks of missteps by The Federal Reserve (FED).

In a recent interview with CNBC, Lee warned that the Federal Reserve (FED) may be tightening policies to the extent that it could harm the economy. If the Federal Reserve (FED) fails to respond to the increasingly evident signs of weakness, it may be forced to abruptly reverse its policies—triggering panic over interest rate cuts.

Lee believes that the Federal Reserve (FED) delaying the easing of monetary policy in the face of deteriorating fundamentals could lead to what he calls an “unexpected event,” meaning a sudden economic recession or financial shock that forces the FED to take emergency action. “We have already seen the housing market collapse under the heavy pressure of interest rate hikes,” he said. “Job growth looks robust on the surface, but a closer look reveals that finding a job is becoming increasingly difficult—especially in high turnover or entry-level industries.”

He emphasized that the real threat may no longer be inflation, but the cumulative damage caused by rising borrowing costs and declining consumer demand. Although The Federal Reserve (FED) has focused on controlling inflation over the past two years—Lee believes that a large part of it stems from supply disruptions during the pandemic—it may now be fighting a battle of yesterday while ignoring the cracks forming in the real economy.

One of his biggest concerns is that The Federal Reserve (FED) has underestimated the lag effect of monetary policy. Lee pointed out that interest rate hikes do not immediately permeate the broader economy. “Interest rate hikes take time—usually more than a year—to truly impact the economic system. By the time they do have a real impact on the economic system, the The Federal Reserve (FED) may realize that it has overdone it,” he said.

He pointed out that the real estate market serves as an early warning signal. With mortgage rates still hovering near decades-high levels, housing affordability has significantly declined, and new home construction is slowing down. Meanwhile, the rising delinquency rates on auto and credit card loans indicate that households are starting to feel pressure. “Real estate is not just an industry; it is a major driver of consumer wealth and economic activity,” Lee added. “If this engine stalls, the consequences will far exceed the construction sites themselves.”