The Federal Reserve and Recession Fears - 15 iunie 2022
The Fed leaked Monday that the FOMC might consider a 75-point rate increase, and financial markets tanked on the news. But at 1% the real fed-funds rate is still deeply negative, and the Fed’s mistake is that it has been too easy for too long. The sooner the Fed breaks inflation, the better. As Mickey Levy and Charles Plosser argue nearby, the Fed will probably have to go much higher to get inflation back to its 2% target. One sign to watch Wednesday is how much higher the FOMC eminences raise their expectations for the endpoint of rates than their 2.8% median in March.
Fed Chairman Jerome Powell has all but said that the goal of the current tightening is to reduce demand in the economy and ease the tight labor market. This means slower growth, which was already underwhelming at minus-1.4% in the first quarter and is on a paltry 0.9% pace in the second quarter, according to the Atlanta Fed’s GDPNow tracker.