Why the Fed is wrong

About the author:

Michael Knox
Author name:
By Michael Knox
Job title:
Chief Economist and Director of Strategy
Date posted:
10 October 2019, 5:50 PM

The reason the Fed is wrong is because the US economy is going to be significantly weaker than their estimate of 1.9% in 2021. We know from our analysis of the shape of the yield curve that in 2021 the US will be in a soft landing or growth recession.

A soft landing doesn’t mean that you have just a 10 basis point drop in growth. A soft landing will feel like a recession but growth in GDP terms will still be positive. Unemployment will be going up much more rapidly than the Fed thinks.

As a result of the Fed being wrong about growth in 2021, they’re wrong about where the Fed funds rate is going to go for the next four years. They will realise as they get into the end of next year, perhaps earlier, that they need to cut rates further.

Listen

Listen to my full presentation to the Morgans network late last month where I explain in more detail:

More information

View more of my analysis by clicking on 'economic strategy' in the popular topics list, or listen to my full playlist of podcasts on SoundCloud. Alternatively, contact your Morgans adviser or nearest Morgans branch.

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