Joseph Heller’s novel “Catch-22” delved into the impossible conditions imposed upon people caught in situations from which there is no escape because of mutually conflicting or dependent conditions. That Catch-22 is an apt description of where the Federal Reserve finds itself as it lifted its ... READ MORE >
federal funds rate
How high will interest rates go?
As the Federal Reserve struggles to tame inflation, the central bank is raising interest rates and tightening financial conditions in what we think is a regime change that will increase the cost of both public and private debt and curb growth. We expect the Fed to raise its policy rate above 5% in ... READ MORE >
Fed raises its policy rate by 75 basis points as it prepares to slow pace of hikes
The Federal Reserve increased its policy rate by 75 basis points on Wednesday to a range between 3.75% and 4% as it hinted at slowing the pace of its hikes while it assesses the impact of past increases. We expect at least a 50-basis-point hike in December, another 50-point hike in January and then ... READ MORE >
FOMC preview: Policy rate moving higher as Fed may prepare to slow pace of price stability campaign
We expect the Federal Reserve to increase its policy rate by 75 basis points to a range of 3.75%-4% when it publishes its policy decision on Nov. 2. Fed Chair Jerome Powell will almost surely utilize the press conference following the Federal Open Market Committee meeting to note that at one point it ... READ MORE >
Falling gas prices imply further inflation relief
Retail gasoline prices in the United States are poised to continue their recent decline as the summer driving season ends and households fall back into more traditional schedules. The average retail gasoline price has declined to $3.78 per gallon from a peak of $5.01 on June 13—a 21.2% drop—and ... READ MORE >
Powell at Jackson Hole: From era of abundance to one of insufficient supply
The pandemic has been the catalyst for a seismic shift in the American economy as it shifts from an era of abundance to one of insufficient supply. For households, this implies a shift from what we call rational inattention regarding consumption to a more rational approach to spending. As ... READ MORE >
Expectations at the end of business cycles
The Federal Reserve has a blunt yet effective instrument to fight inflation: raising the federal funds rate. But using it requires a delicate balancing act. In the best-case scenario, the Fed, by raising rates, reduces discretionary spending enough to stabilize prices, and the economy continues to ... READ MORE >
Jackson Hole preview: Powell to set tone for next few years
The conversation around monetary policy among market participants has unfortunately revolved around a potential pivot by the Federal Reserve toward reducing rates because of an elevated risk of a recession. But Federal Reserve Chairman Jerome Powell will have the last word. His much-anticipated ... READ MORE >
Midyear update: An economy on knife’s edge as inflation bites
Gradually, then suddenly: That is how Mike Campbell, a character in Ernest Hemingway’s “The Sun Also Rises,” answered the question on how he went bankrupt. It’s also an apt way to think about how the United States goes into a recession. While there are always signs of financial stress and ... READ MORE >
Changes in Fed policy and their impact on the economy
After more than a decade of disinflation and the threat of deflation, the Federal Reserve is now dealing with persistent inflation resulting from a pandemic-induced supply chain shock, a surge in consumer demand and yet another oil shock. This has resulted in an abrupt shift in policy to restore price ... READ MORE >