As the Federal Reserve continues to raise interest rates in its bid to reduce inflation, it runs the risk of triggering a significant economic slowdown, according to Invesco’s chief global market strategist Kristina Hooper.

“When you raise rates in 75 basis point increments and don’t give them time to process and work their way through the data, you’re playing a dangerous game,” Hooper said on a Bloomberg podcast. . “And the more you do that, the more likelihood you create of having a recession – and a major recession.”

Since March of this year, the Fed has raised benchmark interest rates by 300 basis points, from a range of 0.25-0.50% to a range of 3-3.25%. The last three increases were 75 basis points each.

Last month, Atlanta Fed President Raphael Bostic said he expected the agency to raise interest rates another 75 points at its November policy meeting and then by 50 basis points in December, bringing the interest rate between 4.25 and 4.50%.

Although the Fed is raising interest rates to control inflation, the agency’s action does not seem to have had the desired effect even though upward pressures on prices have eased somewhat.

The Fed pushed interest rates up 300 basis points between March and September, but 12-month inflation remained consistently above 8% each month during the period.

Inflation peaked at 9.1% in June and 8.2% in September. The Federal Reserve Bank of Cleveland’s Nowcast tracker estimates that October inflation will also be above 8%.

Recession risks

In an interview with CNBC, JP Morgan Chase CEO Jamie Dimon said the Fed waited “too long and did too little” as inflation hit 40-year highs. He predicts that the United States will be in “a kind of recession” over the next six to nine months.

“It can range from very soft to quite hard and a lot will depend on what happens with it. [Russia–Ukraine] war. So I think it’s hard to guess, be prepared,” Dimon said of the recession while predicting volatile markets and potentially messy financial conditions.

Speaking to Fortune last month, Jay Hatfield, CEO of Infrastructure Capital Management, said the Fed’s interest rate hikes were now overly aggressive. The agency is “behind the curve” and raising interest rates even as inflation slows.

This is because the central bank uses lagging indicators such as the consumer price index, unemployment rate and inflation expectations, he pointed out. Instead, the Fed should use leading indicators such as energy prices, exchange rates and money supply, Hatfield suggested.

Meanwhile, the state of the economy is a key question among American voters ahead of the November election. A recent poll by Politico-Morning Consult showed more than 90% of voters worried about the economy and high inflation for decades.


Naveen Athrappully is a reporter and covers world affairs and events at The Epoch Times.

About The Author

Related Posts