Is the Fed hiking rates too fast? (Daily 2-Min S&P 500 Commentary by Sidney Shauy)
How does this Fed hiking cycle compare to past ones in terms of speed? One distinct feature you can see in today’s chart is that the present hiking cycle is lifting rates at the fastest pace than any other time in history. The red line in the chart for 2022 is the steepest of the bunch. No wonder, the Fed started too late to hike after the inflation alarm had already sounded but dismissed as “transitory” for way too long. The Fed had to be specially aggressive to catchup, even at the risk of overshooting and causing a recession. You can see that the 1983–84, 1988–89, and 1994–95 cycles were also fast but not as fast as today. In those occasions, the Fed raised about 300 bp (3%) in a little over an year and kept the rate at that high point for just a few months (1–4). The 2004–2006 hiking cycle was about the same speed but the rate was raised higher (about 400 bp or 4%) and kept at the peak much longer (14 months). The 1999–2000 hiking cycle saw a smaller hike (150 bp or 1.5%) and leveled at the top for 7 months. The years 2015–2018 saw the slowest hiking cycle taking 39 months with the highest rate kept high for 6 months.
The current hiking cycle already raised 300 bp (3%) in just 7 months, the fastest in recorded history, we already said. The last 3 hikes were of 75 bp (0.75%), considered oversized by normal standards. According to the Fed Funds Futures market at CME, the market expects another 75 bp hike on Wednesday with 91% probability, at the time of this writing, 2 hours before the Fed’s official announcement. It also expects a 50 bp hike in December, a 50 bp hike in February, a 25 bp hike in March 2023, and then pause there at 5.00%-5.25% until July 2023. Then the Fed would start cutting rates. Well, that’s the current view of the market.
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