The Credit Strategist Blog
Economists use numbers to measure things that are often not precisely quantifiable. This renders the art (it is an art and not a science) of economic and market forecasting extremely difficult. Right now, forecasters are wrestling with the impact of the Fed’s interest rate hikes that are unprecedented in size and speed.
One important aspect of these hikes is their graduated nature. The Fed did not wake up one day and raise the Fed Funds rate to 3.25% in one fell swoop (where it sits today), nor did it say exactly to what level and on what timetable it would raise rates. It uses an imprecise “dot plot” to give its best estimate of what it plans to do but remains “date dependent” so it can react to market events. This approach is perfectly reasonable, but the Fed is basically flying blind while using deeply flawed assumptions about how interest rates work in the real world (a topic for another day).
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