The path is clear. In the name of fighting inflation the Federal Reserve is raising rates.
Raising rates is causing casualties. First in the housing market. Then with potential liquidity issues in the US Treasury bonds market. Eventually this road leads us to other sectors of the economy getting in trouble and unemployment inevitably rising.
What step of this process are we at?
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A telegraphed recession
I was wrong.
At the beginning of the year when the Federal Reserve started to run the quantitative tightening playbook my take was that they would not be able to raise the Fed Funds rate above its previous high.
Well they have done it.
Now my logic to say they would not go above the previous high was that:
For the US economy to function debt needs to be cheap. Which means rates can only be so high.
There is a clear trend historically showing that the Fed has not managed to raise rates consistently for decades.
Of course (2) is a consequence of (1). They usually end up breaking something before they can do too much.
But regardless, the Federal Reserve has managed to do more than I expected.
One reason they have managed to do so much is because they have done it fast.
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