Is Powell’s Path Forward Widening Or Narrowing?

Check out the accompanying pdf and chart collection. Executive Summary: The Fed has paused its rate hiking for now but not without warning that resumed tightening is possible. Either way, monetary policy will be kept restrictive for longer than investors previously expected, Fed Chair Powell has said. What does that scenario imply for the economic outlook? Peaks in the federal funds rate are coincident indicators of financial crises caused by restrictive policy, which often trigger credit crunches and recessions. That’s the big risk of the Fed’s higher-for-longer rate path. ... We don’t expect that scenario—we’re in the soft-landing camp—but were it to occur, the highly leveraged commercial real estate market might be the epicenter of the financial crisis.