The minutes, he added, “dash yet more hopes for an economic soft landing.”
“The tone of the minutes indicates the Fed is not yet ready to pivot as the central bank believes risks for inflation remain to the upside, and they will keep tightening until more substantial progress is made on bringing it back closer to target. Inflation remains their primary concern, not risks to economic growth,” he said.
Lagged effect of rate hikes
Greg McBride, chief financial analyst of Bankrate.com, echoed Green’s concerns: “Despite a rapidly cooling housing market, inflation has shown no signs of letting up, the labor market is still strong, and the economy is resilient,” he said. “This forces the Fed to continue its aggressive approach to interest rates.
“Interest rates have increased at the fastest pace in 40 years, and the cumulative effect will slow the economy, perhaps significantly, in 2023. Mortgage rates have rocketed to 16-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs. Savers are seeing the best yields since 2009 – if they’re willing to shop around.
“The lagged effect of all these interest rate hikes, coupled with the reverse wealth effect of declining stock and bond prices, means we could see a rapidly slowing economy in 2023. Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain.”