The second fail of Fed: deVere Group

Oksana Patron

4 May 2023

The Federal Reserve has made yet another mistake with its latest decision to hike interest rates, a move which has been described as the US central bank’s second failure after its earlier lack of action and timely response to surging inflation, by independent financial advisory group, deVere Group.

“The Fed failed early on with inflation due to its grand-scale inaction.  It was a hugely consequential miscalculation by the world’s most influential central bank,” Nigel Green, deVere’s chief executive, said.

“The Fed has now failed again, making another mistake, this latest interest rate hike, which could push the world’s largest economy not only into a short-term but a longer-term recession. Clearly, this would not only be a huge issue for the US, but the global economy too.”

According to Green, the Fed’s decision to have raised rates this time was wrong for three reasons: the still ongoing crisis across the US financial system, the time lag for monetary policies was too long and because of the bond market which suggested a longer or deeper recession.

Nigel stressed that the US central bank’s decision was “set to deliberately plunge” the US economy into a recession.

He reminded that the turmoil from the US banking crisis would see a further tightening of credit conditions for households and businesses which, in turn, would lead to a slowdown in economic activity and hiring.

It also takes around 18 months to two years to see the full effect of rate hikes and how it translates to the economy.

And, finally, the bond market is inversely related to bond prices, suggesting a longer recession.

“This is typically the sign of a coming recession – an inverted yield curve has emerged roughly a year before nearly all recessions since 1960,” Green added.

“We can only hope now that this is their last rate hike for a while for the good of the real economy and to restore some of their own credibility.”