The Fed has been placed in a tough position here. A huge portion of the inflation from this year comes from temporary supply-side shocks, and the federal funds rate is quite a blunt instrument to counter such a complex dynamic. Were it not for the pandemic and Russia's war with Ukraine, this would probably be a non-news 0.25% rate hike.
But now the Fed has to thread the needle and find that "soft landing", something that they don't have a great track record of doing. But they'd rather trigger a recession then deal with the greater issues that come with persistent 8% inflation, so they have to bite the bullet.
Of course equity markets are all down significantly ("the stock market") but equity prices are actually a quite poor indicator of recession. The ol' saying "the stock market predicted 9 of the last 5 recessions" is very true.
But in addition to the aforementioned supply side shocks, the economy is indeed running quite hot. We're nearly at full employment, open job listings are at record highs. Although real wage growth is still stagnant, nominal wage growth – particularly for the lowest paid workers – is growing; something it has historically been loathe to do.
An otherwise robust economy could deal with a few issues like this, but throw in the shocks to the economy and, indeed, the Fed has to step in with a moderating influence.
But now the Fed has to thread the needle and find that "soft landing", something that they don't have a great track record of doing. But they'd rather trigger a recession then deal with the greater issues that come with persistent 8% inflation, so they have to bite the bullet.
Of course equity markets are all down significantly ("the stock market") but equity prices are actually a quite poor indicator of recession. The ol' saying "the stock market predicted 9 of the last 5 recessions" is very true.
But in addition to the aforementioned supply side shocks, the economy is indeed running quite hot. We're nearly at full employment, open job listings are at record highs. Although real wage growth is still stagnant, nominal wage growth – particularly for the lowest paid workers – is growing; something it has historically been loathe to do.
An otherwise robust economy could deal with a few issues like this, but throw in the shocks to the economy and, indeed, the Fed has to step in with a moderating influence.