Are Jerome Powell And The Fed Headed For Disaster? | The Mesh Report

Are Jerome Powell And The Fed Headed For Disaster?

the Mesh Report Staff September 22, 2022 Comments Off on Are Jerome Powell And The Fed Headed For Disaster?

When the Federal Reserve started hiking interest rates to combat decades-high inflation, Chair Jerome Powell stressed that the central bank could increase borrowing costs without inflicting too much damage on the economy.

“We feel the economy is very strong and will be able to withstand tighter monetary policy,” Powell said in March.

Six months later, Powell is sounding less assured. The Fed announced its third consecutive supersized interest rate hike on Wednesday and indicated that it would continue to be aggressive should inflation remain elevated.

Slower growth and higher unemployment “are all painful for the public that we serve, but they’re not as painful as failing to restore price stability and having to come back and do it down the road again,” Powell said.

Breaking it down: The central bank didn’t go as hard as some investors thought it might. Some had been bracing for the first full-point hike in the Fed’s modern history. Yet tucked into the central bank’s projections were signs that it plans to stay tough, even if it means pushing the economy into rocky territory.

“The Fed has now entered the ‘danger zone’ in terms of the rate shock they are throwing onto the US economy,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.

The Fed’s main interest rate is now set between 3% and 3.25%. Previously, its top policymakers had indicated rates could climb to 3.4% by the end of this year, which would imply the hiking cycle was almost over.

No longer. The Fed is now penciling in rates of 4.4% by the end of the year, which implies more big hikes in the next few months.

At the same time, the Fed has revised higher its expectations for unemployment. It currently expects the unemployment rate to hit 4.4% in 2023, up from a 3.9% estimate in June.

What it means: The Fed isn’t going to back down, even if its strong medicine is tough for America’s economy to swallow.

“Our view is that a Fed funds rate of 4% is about the highest that the economy would be able to withstand, and the Fed is clearly threatening to raise rates above that level,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients after the announcement.

It’s a message that could roil markets in the coming weeks as Wall Street digests it.

Continue Reading at CNN

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