WHY RATES HIKE IS VERY UNLIKELY?

Jerome Powell is praying for better days in order to raise the rates.

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  • Wednesday’s forecast showed 13 members of the Federal Open Market Committee believe the Fed will increase rates in 2023 and the majority of them believe the central bank will hike at least twice that year.
  • In fact, seven of the 18 members see the Fed possibly increasing rates as early as 2022.
  • The Fed also sharply increased its inflation forecasts for the year.

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Every quarter, members of the committee forecast where interest rates will go in the short, medium, and long term. The Fed also sharply increased its inflation forecasts for the year. It now sees inflation running to 3.4% this year, above its previous estimate of 2.4%. The central bank also slightly hiked its PCE inflation estimates for 2022 and 2023. Core PCE inflation is expected to come in at 3.0% in 2021, up from March’s forecast of 2.2%. Core PCE for 2022 is now expected at 2.1% and is projected to stay at that level in 2023.

Two legit questions raise after this announcement. The first one is are the inflation projections accurate at all? There is a reasonable doubt that the inflation is a lot bigger than the official numbers. We covered the topic in a previous article: Should We Be Worried About Inflation

The second serious question is are such rate hikes even possible? Do they really think they can actually raise rates in 2023 with $35 trillion in debt and Debt to GDP above 150%? Is it possible? Some market participants are convinced that they know they can't but have to pretend they will in order to tamper with the markets whatever that means.

Time is the best judge and only time will tell. However, in times like this, it is better to play with cards close to the chest and do not take anything for granted. Because when all the hell breaks loose we are our own saviors. Better be prepared.

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