The Fed runs the risk of overshooting

Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from March 1, 1971 to March 31, 2023. For illustrative purposes only. Fed = Federal Reserve.

Key Takeaways

  • Although we expect two more rate hikes in 2023, we believe that the final number remains flexible and dependent on how the economy and inflation levels continue to evolve.
  • Over the past four decades, policy interest rates have topped out at progressively lower levels during monetary policy tightening, eventually pushing the economy into a recession. The current rate-hike cycle has already broken the previous downward trend.