The Fed is going to pivot in 3 phases, says author Nomi Prins:

A trader works on the floor of the New York Stock Exchange (NYSE), as a screen captures Federal Reserve Board Chairman Jerome Powell during a news conference following the Fed rate announcement, in New York City, US, July 27, 2022 shows to.

Brendan McDiarmid | Reuters

US Federal Reserve Aggressive interest rate hikes could be forced to go out of their way in three phases, according to author Nomi Prince.

Markets expect the central bank to raise 75 basis points for the third time in a row at its monetary policy meeting later this month, the sharpest pace of monetary tightening that policymakers used to benchmark the Fed as a key policy tool in the early 1990s. Funds rate was used.

Various Fed officials have reiterated The Federal Open Market Committee’s commitment in recent weeks to rein in inflation, but Prince told CNBC on Tuesday, that the acceleration of interest rate hikes to calm markets may be detracting from the economic reality faced by many. went.

“The rate hike we have seen so far in this period of accelerating has impacted the real economy as it lowered the cost of borrowing for real people, real consumers,” she said.

“While for the Street in general, historically money is still cheap and leverage in the system still remains high, and the Fed’s book still remains a touch under $9 trillion, which is the period of the pandemic.” doubled in, and since the 2008 financial crisis.”

Fed likely to 'pivot' three phases, says Nomi Prinso

Despite broad market expectations for a further 75 basis points hike, Prince – a global economist and outspoken advocate of economic recovery – said the Fed would be moving away from its bullish trajectory in three phases because of the disconnect between wealthy investors and institutions and The “real” economy expands.

After first reducing the pace of rate hikes to 50 basis points and then neutralizing the policy, Prince expects the Fed to begin to reverse course and become “accommodative,” as the US is already on a constant trajectory of negative GDP growth. recorded in two quarters.

“Whether it’s to cut rates or re-size your book remains to be seen,” Prince said.

Inflation has skyrocketed around the world from supply chain disruptions following the COVID-19 pandemic, supply disruptions in China due to recurring lockdowns, and Russia’s invasion of Ukraine, which has driven up food and energy prices. .

Central banks have argued that aggressive action is needed Prevent Inflation From Becoming “Intrusive” In their respective economies, and in particular consumers have been wary of feeding wage inflation through price inflation, which they anticipate could further increase demand and therefore lead to price increases.

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in your speech Jackson Hole Economic Symposium In late August, Fed Chairman Jerome Powell responded to market concerns about an impending recession due to tightening monetary conditions, saying that “some pain” would be necessary for the economy in the fight against inflation.

Prince argued that targeting wage inflation was a mistake when wage growth was failing to keep pace with broader inflation.

“I think the Fed is perfecting this connection between what is happening to real people in the real economy and why, and how it relates to the overall inflation picture, which basically positions itself to fight. kind of missing. There’s just a mismatch here,” she said.

She argued that raising rates by central banks as their main tool to fight inflation has created a “gulf” between individuals and institutions that can significantly lower borrowing costs and prices, and in the markets of the average consumer. were able to take advantage of themselves.

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