Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

'Markets are going to get rocked' as Fed is likely to push rates higher, economist warns

'Markets are going to get rocked' as Fed is likely to push rates higher, economist warns

Markets are going to get rocked as the Federal Reserve pushes interest rates higher, said top Fed watcher Ricardo Reis.
The Federal Reserve is likely to raise interest rates more than the markets now expect, says Ricardo Reis, an economist at the London School of Economics.

“Markets are going to get rocked,” Reis told MarketWatch on the sidelines of the American Economic Association annual meeting in New Orleans on Saturday.


“All the risks are on the upside. A rate of 5.5% is the minimum,” he added.

Last month the Fed raised the top end of its benchmark rate range to 4.5%. The central bank penciled in a 5.25% terminal rate.

Investors who trade in the fed-funds futures market now expect the Fed to stop raising when rates get to 5%.

Reis thinks the central bank will ultimately move rates higher.

The Fed is burned by failing to recognize the persistent upward move of inflation in 2021, he said.

“So I think they are biased toward over-tightening,” he said. “Either legitimately or because they are worried about fixing their past mistake, there are going to be tighter than you think.”

The economy is at a turning point and the Fed does face some “tough calls,” Reis said.

The key going forward is the path of wages.

Workers need to have their wages go up because their paychecks have not kept up with inflation.

So the Fed is going to have to gauge if the rise in wages is too much, just right or too little, he said.

If wages don’t rise much, inflation can quickly return to the Fed’s 2% target, he said.

If wages rise in line with productivity, the Fed won’t have to raise too much and inflation will come down to 2% in a few years.

This will be difficult because productivity is an economic variable that is hard to measure.

If wages spike, this would probably cause companies to continue raising prices, kicking off a wage-price spiral, Reis warned.

The Fed might overreact to the rise in wages, he said.

There is a scenario where rates go up “much more,” Reis said. But there is a range — it could be “much much more” or “much more” or “just more.”

Reis said that he was sympathetic to the idea that raising the unemployment rate to 5.5% was not a terrible outcome if it means a return to low inflation.

The unemployment rate hit 3.5% in December.

Stocks moved sharply higher Friday when the government reported relatively slow increase in wages in December.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
More Than 150,000 Followers for a Fictional Character: The New Influencers Are AI Creations
EU Prepares for War
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
×