When Will The Fed Stop Raising Rates?

| November 18, 2018
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While this article and the details below are a bit wonky, it supports the premise that the Fed may NOT need to raise rates next year.

Especially into an economic and inflationary slowdown as I am predicting.

From the CFR:

Our calculations also suggest these balance-sheet effects will soon get larger. If asset run-offs continue at the Fed’s announced pace ($50 billion per month up from $25 billion), then by the end of 2019 they will tighten monetary conditions as much as a policy-rate increase of 220 basis points (2.2%)—as the far-right end of our right hand figure shows.

effects of fed balance sheet reduction

What are the implications for the U.S. economy? The Fed estimates that once interest rates surpass three percent—their “neutral level”—monetary policy will shift from stimulating economic growth to constricting it. Today, the Fed expects that rates will remain below this neutral level until the end of 2019. But by our calculations, the combined effects of balance-sheet reduction and conventional rate hikes will produce an equivalent tightening in monetary conditions much sooner: by the end of 2018. This fact suggests that monetary policy will start to contract economic growth early next year.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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