Image source: Pixabay
 

First, there really has been a very fast pace of hikes, from basically zero at the start of the year to an upper bound of 4% as of yesterday. It's possible that the full effects of the hikes (ex-housing) have yet to be felt.

Second, an obvious lesson from this year is that nobody really knows when or where inflation is going to start decelerating. So with so much uncertainty on inflation itself, you have to take any terminal rate forecasts with a grain of salt. Powell can say that the terminal rate will probably be higher than what was estimated in September, but the Fed can't really know.

The only thing we really know for sure is that the Fed is thinking about some step down in the pace of hikes which, per Powell, "may come as soon as the next meeting or the one after that." Then we'll see if ongoing normalization and the lagged effects of the rate hikes can do some of the heavy liftings and shift pressure away from the need for more tightening.

Video Length: 00:06:28

More By This Author:

Elon Musk And Misinformation
Who Is Driving The Economic Car?
An Interview With SF Fed President, Mary Daly