Will another rate hike be a massive mistake by the Fed?

cryptoslatePublicado a 2023-05-04Actualizado a 2023-05-04

Resumen

Then the federal reserve increased the Fed funds rate at the quickest rate ever, ultimately crushing banks. We are now seeing the aftermath of these results.

Quick Take

As we prepare for a 25bps rate hike that takes the Fed funds rate to 5.00-5.25%, this could be a third mistake from the Fed.

First Mistake

The Fed hiked rates way too late after inflation was still an issue; the Fed’s balance sheet continued to increase while inflation was surging.
Q2 2022: 8960B (peak)
Q4 2021: $8464B +$496B

Inflation CPI YoY

Q2 2022: 8.6%
Q4 2021: 5.5%

Fed Balance Sheet: (Source: FRED)

Second Mistake

Then the federal reserve increased the Fed funds rate at the quickest rate ever, ultimately crushing banks. We are now seeing the aftermath of these results.

Rate Hike: (Source: Federal Reserve)

Third Mistake

This is more of an opinion, but due to the above mistakes, it would be sensible to wait one more month to see the impact of said rate hikes. However, inflation is still over double the feds target so a rate hike can be deemed necessary.

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