Ford School Economist Warns: Stop Forecasting 'Rate Cuts Are Coming Anytime Soon'

In a series of tweets on Wednesday, renowned economist and Professor at Ford School Justin Wolfers shared his insights on the Federal Reserve’s recent press conference, suggesting that future tightening of monetary policy is still very much on the table.

What Happened: Wolfers argued that the Federal Reserve, under the leadership of Jerome Powell, has been in a months-long disagreement with markets. While markets have been anticipating rate cuts, the Federal Reserve has been hinting at further rate hikes. “His message was pretty hawkish: Future tightening remains very much on the table (and it sounds more likely than less),” Wolfers tweeted.

Wolfers further noted that Powell emphasized the data-dependent nature of policy and pointed out the significant amount of data due before the next Fed meeting. However, Wolfers observed a clear bias towards tightening, with Powell framing the choice as between a rate hike and no hike, without even mentioning easing.

Wolfers concluded his thread by warning markets not to underestimate the Fed’s determination to bring inflation back to target relatively soon. He urged markets to “stop forecasting that rate cuts are coming anytime soon.”

See Also: Peter Brandt On Fed’s Rate Roadmap Going Ahead: ‘Have A Less Dovish Opinion…’

Why It Matters: This comes in the wake of the Federal Reserve’s decision to raise interest rates to 5.5%, the highest since early 2001.

The decision has drawn mixed reactions from economists. Quincy Krosby, Chief Global Strategist for LPL Financial, noted that the Fed's statement left the door open for another rate hike if deemed necessary.

Joe Brusuelas, Principal & Chief Economist at RSM U.S., voiced a different opinion, saying that the July rate hike is the final increase in a two-year effort to restore price stability, while Bill Adams, Chief Economist for Comerica Bank, anticipates that the Fed will probably refrain from a further rate hike in September, while setting up November as the next time when there is a significant chance of a rate hike.

Wolfers’ tweets suggest that the Federal Reserve is not yet done with its tightening cycle. If the Federal Reserve continues to raise rates, it could slow economic growth and potentially tip the economy into recession.

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