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Simona Mocuta talks about the Fed’s hawkish policy pivot. Video(1:30)
Simona Mocuta, Chief Economist
The Fed made a dizzying policy pivot this week. It now expects three rate hikes in 2022 and three more in 2023. There is a sudden concern around inflation that was absent – in fact, conspicuously absent even a couple of months ago. And it feels as though the committee is trying to offset its prior inaction by taking a more aggressive stance going forward.
But timing matters, and it looks likely that with the current projection, the committee would be tightening and accelerating the pace of tightening just as the economy and inflation moderate substantially in the latter part of 2022.
In fact, our 2023 US growth forecast was already at the low end of the committee's own range, and that was with the milder tightening cycle. And we are concerned that given the latest projection, there is a genuine risk that the Fed would inadvertently trigger a mild technical recession in 2023.
It's possible of course that this latest hawkishness will be dialed back in coming months. And in fact, for the time being, we are comfortable retaining our call for only two rate hikes in 2022.
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