Fed's Illogical Formula
Macro Perspectives
The Fed raised rates another half point - that puts the effective Fed Funds rate around 4.3%.
Given this week’s inflation data (which shows clear cooling over recent months) is the 50bps increase the end of this rate hiking cycle?
Let's take a look at how the Fed sees next year...
For 2023, the Fed sees very little economic growth (which would be a second consecutive year).
They see their favored gauge of inflation coming down to 3.5%.
And yet they see rates UP another three quarters of a percentage point - at over 5%.
That's an illogical formula.
With that, the 10-year Treasury yield went down (on this news), not up. The market is not buying what the Fed is selling.
The benchmark market-determined interest rate (widely viewed to be the "smart money") is now trading 160 basis points below where the Fed is projecting to take short term rates next year.
So, who's smarter: The Fed or the interest rate market? Well, we know that the Fed's projections have a history of being very wrong (AND their projections can, and do change, with no apologies).
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They really are pushing it
I get that inflation is bad but it’s like first time in so many years and super exceptional. I wonder what they would do if they had inflation over 10% annually like so many others countries around the world