The U.S. Federal Reserve refused to rule out Wednesday an aggressive run of interest rate rises as it all but confirmed the first increase would be implemented in the near future.
As was widely expected by the markets, the Fed – in hawkish mode - has practically rubber stamped a rate rise for the first time in three years in March as it tries to take on surging inflation, which is running at its hottest in 40 years.
The Fed admitted that inflation may not drop toward its pre-pandemic levels any time soon, and that the rise in prices could, in fact, speed-up.
Why, then, did the world’s most powerful central bank not act sooner to stem this off quicker?
This grand scale inaction must be the biggest miscalculation in the Fed’s history.
However, now the debate is focusing on how fast the U.S. central bank will move toward policy normalization.
Some leading experts on Wall Street are saying there could be up to five rate hikes in 2022, other are suggesting even more than this.
I would urge the Fed not to fail on inflation again by hitting the brakes with too many rate hikes.
The excess money in the system will come out fast. There’s a real risk that numerous interest rate hikes would cause a recession and may not even slow inflation as the soaring prices are triggered by supply chain issues which the Fed’s hikes will not solve.
At Wednesday’s meeting the Chair Jerome Powell swerved a question about whether the Federal Open Market Committee (FOMC) would raise rates at all subsequent meetings this year, which would mean seven increases in 2022.
With booming demand, snarled supply chains and high levels of wage growth, the Fed might be tempted to act too fast with rate hikes this year.
But such moves could turn out to be a masterclass in the law of unintended consequences.
London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.
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