Yesterday the Fed raised interest rates again by 50 basis points, but deep down it doesn’t know what unemployment, economic growth and inflation will do in the coming years. Economist Edin Mujagic attended Jerome Powell’s press conference and assumed that the Fed saw those forecasts as a mandatory number, but that the bank didn’t actually know it. “You saw it clearly.”
“Committee members are asked about expectations up to and including 2025, they are also asked what they see happening with interest rates in those years.” According to Mujagic, that interest was set at between 2.4 and 5.8%. “This is a range of nothing.”
Mujagic provides historical context: “At the end of 2021 the Fed declared between 2.3 and 2.5 percent, in 2017 it declared between 2.8 and 3.0 percent; this is a range that is useful to you. This range actually says they don’t know, because if you were one bit convinced of your estimates of growth, inflation and unemployment, some kind of level of interest rates would result.’ And that is not the case with this range. Ergo, the Fed doesn’t know. And this while financial markets still expect guidance and direction from the Fed.
Mujagic makes a not insignificant caveat: There is a difference between what the Fed says it will do and what actually happens. There can be quite a bit of light in there. In 2021, the Fed forecast 2022 for economic growth of 4%, inflation of 2.5% and interest rates of 0.9%. “The Fed rate is now at four percent. See how much that can change in 12 months.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
