Fed Pause + More Hikes + Wealth Gap

The US Federal Reserve delivered precisely to our forecast script. Going on hold for just the moment, but emphatically emphasising there are more rate hikes to come.

This was our forecast. As has been our consistent expectation that what we will see is the Fed hiking at every second to third meeting all the way through to year end.

This on-going tightening process could take the Fed Funds Rate to 6% by year end.

Not what the market had been expecting. The market had been bizarrely fixated with fantasy pivot expectations? We have consistently pointed to stubborn inflation, the headline may be 4%, still too high, but core inflation is at a whopping 5.3% and services inflation may even accelerate.

A year ago, I forecast the terminal rate for the Fed in this cycle could be as high as 6.5%, or even 7.5%. We have called it well and remain on a reasonable trajectory toward such extreme levels. Unfortunately.

None of this forecast has been based in the belief that this is what the Fed should do, but only based on the expectation from the very beginning that the Fed would fall well behind the curve and then to make matters worse, tighten too aggressively.

This is precisely what is happening. The Federal Reserve is using last century’s text book to decide this century policy responses. It is not working. Inflation is rolling over largely due to the supply side shocks moving out of the data and the natural economic slowing that was due in any case. What the Fed is actually doing is creating a banking and credit crisis that will likely drive the US economy into a far deeper slow-down and recession than is actually necessary to curtail inflation fully.

There is no question the US economy will continue to slow in the midst of this rather ugly matrix of economic forces.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.