Mission Impossible: What To Expect From The Fed

Mission Impossible: What To Expect From The Fed

All eyes turn to the Fed in the new week. Not that traders weren't already obsessing over the September policy decision. Day after agonizingly tedious day, every discussion pivots around the size of the next rate hike and, more importantly, the Fed's destination and how long they'll linger once they reach it. Last week was defined by a repricing (higher, obviously) of the terminal rate and speculation on the prospect of a full-point move at the September FOMC. Personally, I doubt they'll opt f
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4 thoughts on “Mission Impossible: What To Expect From The Fed

    1. Yes, but

      Claudia Sahm is correct to suggest (as she’s wont to do) that recessions are more damaging than inflation, in part due to joblessness. That’s true right up until inflation reaches the threshold beyond which it threatens to become truly ruinous — “corrosive” in an almost literal sense. Before Liz Truss’s plan to cap energy prices, some saw inflation in the UK reaching 20% early next year, or perhaps even higher. That wouldn’t have been totally ruinous, but it would’ve been well on the way. As every regular reader knows, I’m biased towards pulling every policy lever available (including monetary levers) in the service of achieving full employment and equality. Frankly, I thought the odds of 20% inflation in advanced economies were so low that we could effectively ignore them. I was wrong. I still don’t think that’s possible in the US over any sustained period (outside of an apocalyptic natural disaster or some other catastrophe). But people’s first priority will only be having a job until having a job becomes totally meaningless in the context of inflation. Obviously, developed economies are nowhere near that kind of tipping point, and really, I don’t even think Turkey is near that sort of tipping point. But there is such a tipping point. In true hyperinflationary regimes, you’re better off just stealing than having a job. Because prices move faster than you can work. Literally. If the same coffee you bought in the morning is twice as expensive by the time you get off work in the afternoon, the job is an impediment because it keeps you from pursuing other “avenues” for obtaining the things you need.

      1. appreciate the additional color, H., and I get that for sure…I just see inflation remaining above an unrealistic 2% goal for the foreseeable future given supply chain issues, likely coming commodity and food shortages, and Putin’s invasion of Ukraine which has caused the the greatest price distortion imho…therefore I see the Fed having to navigate all of this and find a reasonable balance, and not overdo the rate increases to the point where we have crushing job losses …

  1. The hawks will hike us into a recession. We are only now feeling the first order effects of the first two hikes. Wait until next summer-ugly is the word. Real rates are going to shoot up, when financial conditions and credit spreads gap out.

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