USA Worst Economic Storm Ever

Have no doubt, the United States faces, and is just walking through the door of the worst economic scenario it has ever faced.

Federal Reserve member, Christopher Waller, has state clearly, that demand and the job market are signalling further hikes to higher levels than previously anticipated are required.

Well, it may not have been considered by the Federal Reserve before, and still isn’t by the market in general, but this is exactly what we have been forecasting for the past year.

My target has resolutely been all along, that the Terminal Rate will be in the range of 5.75% to 6.5%. Then there is even risk to 7.5%.Hold on to your hats, this rate hiking cycle may be just getting started.

Christopher Waller even went as far as to say that the employment situation is, and I quote, “unsustainable”. Who ever says that about the jobs market? A central banker in the midst of an 'Inflation Super-Storm’. That’s who!

Inflation has now reaccelerated on all measures available. For some indicators this has been the case for at least two months now.

What Christopher Waller is alluding to, is that there is little hope, perhaps none, of inflation falling back to the Fed’s target range while the economy maintains its current level of activity and the jobs market remains so very strong. He is saying his hand is up for a 50 point hike. We said the Fed slowing was an error at the time. Though we are more likely to see a simple on-going elongated rate hiking cycle at 25 increments. All the way to truly lofty levels.

Interest rates are still low by historic standards. And set against a backdrop of a slowed, but stubbornly seemingly stable economy, and an over-heating jobs market. With inflation at historically extreme levels.

Can I just say that again. Interest rates are low and inflation is super high by historic standards. What do people think the outcome will be?

Think of a racing car driver jumping out of the suburban utility and into a Ferrari? That’s what the Fed is wanting to do at the moment to somehow chase this Inflation Super-storm down.

Remember the other ’super’ is that the Fed is super-concerned about inflation expectations becoming anchored. This occurs when inflation remains persistently high for too long. Consumers and businesses begin to anticipate a state of ever-rising prices and adjust their behaviour and decisions accordingly. This is the world number one economic disaster scenario.

The USA is headed in exactly this direction.

No one wants it, and this is a worry the Fed has frequently highlighted.

Therefore, my once extreme 6.5% target is becoming more accepted by economists generally, and my 7.5% risk scenario is edging ever closer to the centre of the playing board. (For those who don’t get that last reference, we humans once actually used our full arms to move real objects around an actual board. Weird, I know.)

What all of this means for markets, is that they are simply still priced too high. Property, stocks and bonds all have further significant declines ahead of them.

This is no time to oddly chat of a turnaround? The bottom of this economic scenario may be un-fathomable.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.