Posted on 12/07/2022 8:47:45 AM PST by Kaiser8408a
The Fed has signaled the terminal rate will likely be around 5% — we think an upper bound of 5% — reached in early 2023. To get there, the central bank will likely raise rates by 50 basis points at its December 2022 meeting, followed by two more 25-bp hikes in 2023. We then see it holding at 5% throughout the year. Markets have priced in a similar amount of tightening.
Controlling inflation comes at a cost to growth. Yield curves have inverted. A Bloomberg Economics model shows a 100% probability of recession starting by August 2023. Take that — like all model forecasts — with a grain of salt. But the basic view that aggressive Fed tightening will very likely tip the economy into a downturn is correct.
While various measures of impending US recession show a good chance of a 2023 recession, Powell’s preferred measure of the yield curve shows only a 30% chance.
Scenarios of CPI Inflation in 2023
The risk cuts both ways. A quick and successful pivot to reopening in China could boost oil and other commodities prices. A colder winter in Europe and the US would generate upward pressure for electricity and utility prices. Assuming China is fully open by mid-2023 — the base case for our China team — energy prices could increase by 20% in the year. In that case, headline US CPI would hit a bottom of 3.9% in midyear before surging to 5.7% by year-end.
Thanks to Yellen’s legacy of too low interest rates for too long, The Fed is playing catch-up by finally raising rates. It is truly Fed Dead Redemption!
(Excerpt) Read more at confoundedinterest.net ...
Canada went up .5% today and said it was the last it intends to do. These central banks seem to coordinate with each other so I expect ours to stop shortly soon, after the next .5 raise
hope for 75 myself. Hit us hard one more time, then let it be for at least 6 months or more.
Is 5% enough to stop inflation?
This is an "Idiot Induced Recession" with Biden as lead idiot.
The Fed DOES NOT HAVE THE TOOLS to correct Biden's stupid policies!!!!
Do you know ‘Browns Ultra Fan’?
The Fed rate needs to be above the inflation rate to have any affect on inflation—otherwise they are giving banks “free money”.
The Fed knows this—and they are hoping they get lucky and the inflation rate drops below an annual rate of 5%.
Imho this is highly unlikely due to a number of factors:
—Social security and other government programs are raising benefits by more than 5%. That puts more money in the hands of consumers.
—Wages are rising at more than 5% in most industries and labor shortages remain.
—Congress is still spending like crazy—and getting less and less for the money they are spending. That will force them to raise other government spending by more than 5%.
—The supply chain is still an issue in a wide variety of industries—lower supply means higher prices.
Imho inflation will be the “big story” for several years—at a minimum. If the Fed refuses to increase rates above the inflation rate we could be looking at a decade or longer of significant inflation.
It’s a scary thought that we would have inflation for that long. The reality is the Fed is the most responsible for doing this because they’ve been keeping rates so low for so long. What did they think was going to happen?
The Fed typically over tightens trying to slow the momentum. I see a rate of 6 1/2 or 7% by next fall. If the Republicans can cut spending by any significant amount maybe these bumps won’t be necessary, but that is not the way to bet.
Gold, Silver and LEAD still outpacing inflation. :)
7% would be a total disaster...no way the feds crush the economy like that...they’ll live with inflation before they send another 15 million to the unemployment line.
Well, maybe. I remember when Prime hit 21% and mortgage rates topped 14%.
We didnt have 31 trillion of debt back then
True word.
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