Raising Hell or Raising Rates? - Remember those inflation numbers we talked about yesterday? The one that was the highest in over 30yrs? Yeah, turns out that's become quite the cause for concern.
From a market perspective, participants are voicing their near certainty of one or multiple rate hikes in 2022. The chart below shows the market derived probability of at least 3 rate hikes in the next fiscal year. Given rates have done nothing but fall and stay down in recent years, this is gonna be a big deal when JPow (or whoever the Fed chair at the time is) pulls the trigger. Adding to the uncertainty is the exponential element of the increase. For example, if rates are at 9.75%-10.0% and you bump them up to 10.0%-10.25%, its roughly a 2.5% increase on the high end. When rates are at 0%-0.25%, as they are now, and you increase to 0.25%-0.5%, that's a 100% jump on the high end. Big difference. But the chart below is talking about three rate hikes, so, if we assume that each hike will be a 0.25% jump in the range, 2022 could end with a Federal Funds target range rate of 1% - a 300% increase.
In fact, concern around this is running so hot that Joey B even spoke about it. Americans have watched their groceries and gas just continue to run up throughout 2021, and understandably so, they aren't happy. Biden directly stated that inflation is his administration's and the nation's main economic concern at the moment. Which makes sense, as the continued loss of purchasing power won't be tolerated by the American public forever.
As for potential solutions outside of rate hikes, my younger brother had one to offer not too long ago. He (aptly) pointed out that, since we all need more money, the government should just print more! Pretty sound idea if you ask me. Thoughts?