Fed lifts rates by another 75 bps: ‘this path is too much’

on Sep 21, 2022
  • Fed lift rates by another 75-bps for the third time in a row.
  • JPMorgan's David Kelly reacts to the economic news on CNBC.
  • S&P 500 index pared its intraday gain following the rate hike.

The U.S. Federal Reserve on Wednesday announced its third consecutive 75 basis points increase in interest rates to fight inflation that was still lingering near a forty-year high in August (link).

JPMorgan expert reacts to Fed

More importantly, the FOMC signalled continued hikes until the federal funds rate hits 4.6% in 2023. Reacting to the economic news on CNBC’s “Power Lunch”, David Kelly (JPMorgan) said:

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I just don’t think the economy can take it. The dollar is up 20% YoY. Think about what it’ll do to our exporters. A whole swath of potential homebuyers has been knocked out of the markets by 6.0% mortgage rates.

The central bank now sees only a 0.2% increase in GDP this year. Even over the longer-term, it doesn’t expect the economic growth to top 1.8%.

S&P 500 pared its intraday gains following the Fed’s announcement and remains down roughly 10% from its recent high.

Another 75-bps hike is expected this year

In its statement, the Federal Reserve said recent indicators point to a modest growth in spending.

Terminal rate that it’s communicating suggests another 75-bps increase in either of the remaining two meetings this year – and that’s overreaching as far as Kelly is concerned.

You have fiscal drag going on. This path is too much. This economy is slowing down to a crawl. Inflation will roll over anyway. But I think the Fed is in grave danger of being more hawkish than they need to be right now.

Officials expect inflation to take until 2025 to return to their 2.0% goal. Also on Wednesday, the two-year climbed above 4.1%.

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