Steven Blitz at TSLombard.
- Rate hikes beginning last Nov:75, 50, 25, 25, 25, 0 . . .next?
- From now to year end, SEP says unemployment rises to 4.1%, CorePCE drops to 3.9% and the funds rate is 50BP higher.
- If another hike is needed, they are a lot farther from the top than they think.
There are more indicators pointing to recession than reacceleration, with Treasury about to pull close to 9% of one quarter’s nominal GDP out of circulation. In that regard the Fed is probably correct in stopping here. The tortured, twisting explanations delivered every six weeks are meant to manipulate market sentiment, to keep everyone pricing one way while the path of policy is slowing, heading towards zero, and now they are here. The question, therefore, is whether their desired outcome, disinflation with minimal impact on labour markets. is about to be borne out. If not, they will find that rhetoric manipulating forward prices falls well short of delivering what markedly higher policy rates would do – raise unemployment and drop inflation back to 2%.
