As the Federal Reserve continues to hike rates into a rapidly slowing economy, macroeconomic analyst Luke Gromen warns of a growing risk of a default-culminating “death spiral” in U.S. government debt that will force the central bank to hit pause on monetary tightening sooner than markets expect, and then restart the money printers full blast to resume monetizing debt.
Soaring inflation has driven the U.S. central bank to embark on a path of quantitative tightening, with market expectations—based chiefly on eurodollar futures contracts—predicting that the Fed will continue hiking for another six months or so before hitting pause.
The Atlanta Fed’s market expectations tracker , which estimates the three-month average fed funds rate using a methodology that centers on eurodollar futures, predicts the Fed will hike no higher than to around 350 basis points, or 3.50 percent.
The final hike is expected to take place at the Fed’s December meeting, with the tracker then estimating a slight and steady drop in the fed funds rate, to around 284 basis points by mid-June 2023.
But this consensus view—namely that the Fed will keep hiking for another six months before pivoting—will face a hard reality check as economic indicators deteriorate and GDP slows, putting pressure on debt-servicing costs and forcing the Fed to bring forward its timeline for a pivot, Gromen argues. Far Faster Fed Pivot?
Gromen, founder of macro and investment research firm Forest For The Trees, told the Real Vision Finance program in a recent interview that he thinks the last Fed rate hike is barely a month away.
“My base case [scenario] is that what we’re likely to see, in my view, in the U.S. economic data over the next month or two is likely to pull forward the day … where the Fed is forced to pause hiking,” he said, predicting that […]
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