The Federal Reserve could hike interest rates four times this year in an effort to chase inflation, according to analysts at Goldman Sachs. Inflation is allegedly at 7%, the highest in 40 years. However, if we went by the arguably more honest metrics of the early 80s, it would be 15%.
We don’t have the marketplace deciding the economy, government planners are deciding the economy.
Goldman’s current projections call for four rate hikes in 2022, with hikes coming in March, June, September, and December. But with inflation at a four-decade high, the central bank could adopt an even more hawkish policy stance, analysts said in a note to clients over the weekend.
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“We see a risk that the [Federal Open Markets Committee] will want to take some tightening action at every meeting until that picture changes,” the Goldman Sachs analysts said. “This raises the possibility of a hike or an earlier balance sheet announcement in May, and of more than four hikes this year.”
Can they raise the rates high enough fast enough? Transient inflation wasn’t so transient as most people knew who weren’t looking at it politically in an effort to protect Joe Biden.
In their analysis, the Goldman Sachs economists noted various conditions contributing to high inflation, including imbalances between supply and demand, strong wage growth, and higher rent prices.
They don’t mention regulations.
And strong wage growth is partly the result of desperate employers trying to keep their employees and keep up with inflation.
The Feds Will Decide Soon But Hikes Are Coming
The Fed will meet on Tuesday and Wednesday this week to assess the policy. Fears of rate hikes have contributed to the instability on US stock indices, with the market recording its worst week since March 2020 last week.
Fed Chair Jerome Powell acknowledged the likelihood of several rate hikes earlier this month during his re-nomination hearing before a Senate committee.
“If we see inflation persisting at high levels longer than expected if we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back.”
One of the biggest problems causing inflation was the flooding of money into the economy that was not created by the market. And, stunningly, Democrats are currently discussing spending more printed money, calling it Covid relief for Businesses. It’s actually a payoff pre-election. That would be in addition to the BBB bill.
The policies of this administration have to change.
Slowing the Economy
Raising interest rates makes it harder for people to borrow to spend money and that includes businesses wanting to expand. It puts less money in the economy. In other words, the Feds plan to slow down the economy without causing a recession. However, they’re chasing an inflation rate that is high and it isn’t clear that they can raise the rates high enough to counteract it.
An ABC News report states:
Some economists have expressed concern that the Fed is already moving too late to combat high inflation. Others say they worry that the Fed may act too aggressively. They argue that numerous rate hikes would risk causing a recession and wouldn’t slow inflation in any case. In this view, high prices mostly reflect snarled supply chains that the Fed’s rate hikes are powerless to cure.
As one of their guiding principles, the Feds are acting on the premise that they have maximized unemployment. However, that low unemployment number of 3.9% is partly due to the fact that people have left the workforce and aren’t counted. Not one job has been created since Biden took over. He’s replacing jobs that existed and is still nearly 4 million short.
The Biden administration continues to insist the economy is improving. Lots of smoke and mirrors here.
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