InvestorQ : Do you see the Fed rates eventually crossing 4% mark, even if growth is hit?
Angel dcosta made post

Do you see the Fed rates eventually crossing 4% mark, even if growth is hit?

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Juvina Maggie answered.
1 week ago
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There are two parts to your question and I will answer your second part of the question first. What if growth is hit? That is not only a possibility but also visible in contracting GDP growth in the first quarter. However, the Fed is focused purely on the labour data, which continues to be robust. However, the analysis is that if growth and spending are subdued for too long, then labour numbers will also take a sharp hit. Fed is already at a neutral rate level, so further rate hikes would be a trade-off between growth and inflation game.

Let me address the other side of the question on whether Fed will cross 4%, and I think it is perfectly possible. The CME Fedwatch data is ambivalent and hints that the Fed may stop at 3.75%. Inflatoin is expected to come down to 3-4% levels by the end of the year. However, we could have a problem if inflation continues to rise despite rate hikes and this could happen due to the labour slack. In that case, the Fed would go the whole hog and hike rates well beyond 4%. However, a window will be always kept open for an about-turn.

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