‘this path is too much’

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%.