Seema Shah, Chief Global Strategist at Principal Global Investors, has provided the following commentary in regard to the latest rate increase from the US Federal Reserve:
“The Federal Reserve’s 75bps increase now means that, in the space of just four months, it has hiked rates by as much as it did over the entire 2015-2018 hiking cycle. This is rapidly proving to be one of the most aggressive hiking cycles we’ve seen in recent decades.
“From here, it is possible that the Fed slows its tightening pace, reassured by the likely peaking of inflation and pullback in inflation expectations as oil prices have fallen. However, with the labor market still a picture of strength, wage growth still uncomfortably high and core inflation set to decline at a glacially slow pace, the Fed certainly cannot stop tightening, nor can it downshift gears too much.
Also read: June CPI: Stubborn Prices Mean Aggressive Fed
“Combatting four-decade high inflation will take a sustained show of strength from the Fed, rendering a soft landing an almost impossible pipe dream. We continue to expect rates to rise above 4% next year, before recession opens the door to rate cuts in late 2023.”
