This article discusses the implications of the
Fed’s policies in recent times while looking ahead to the releases of new data,
and the changing leadership of the Fed. It is looking likely that the Fed will
raise interest rates again this Wednesday by 0.75 percentage points as they
continue to battle inflation. The article raises the question that many
Americans have been questioning, namely whether the current fiscal policy will lead
us into a recession. However, as pointed out by the business writer, Paul La
Monica, this situation is not something that the Fed has much experience
dealing with, noting that previous Fed electives have never had to raise rates
by such a significant margin this many months in a row. With that being said,
there have already been signs of the housing market showing strain, as well as
bond yields spiking.
One of the main worries which are referenced
in the article is that policymakers will not slow down to think of the lag
effect that raising interest rates can create. Current changes in policies will
likely only show at a point much later than the initial change. On top of this,
with the rotation of regional Fed presidents occurring in early 2023, there
will likely be a change in the willingness to follow current policies.
The article also looks toward the upcoming
release of labor market data, where growth is expected to continue but at a
much slower rate than previously experienced so far in 2022. Even with this
being the case, the labor market remains tight and has experienced an increase
in average hourly earnings that have been higher in the last 12 months than in
previous years. The article closes with a quotation from economists at the Hamilton
Group; “The pace of hiring is very
high, unsustainable, and is pushing up wages and inflation”.
https://www.cnn.com/2022/10/30/investing/stocks-week-ahead/index.html
One aspect of inflation that I was unaware of was the rotation of the Fed presidents early next year. You bring up a valid point that the current lack of awareness around future consequences of inflation may be exacerbated by the rotation. It will be interesting to follow this aspect of inflation and monitor changes to policy and their effects.
ReplyDeleteAs the last quarter of this year recored economic growth, despite continuous interest rate increases and surging inflation, it seems the FED will aggressively deal with this growth as there are signals of a recession but it is not in effect. The way of how the FED deals with it will have implications for the people especially the low income class, who will suffer the most.
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