Fed Playing a ‘Dangerous Game’ That May Lead to ‘Significant Recession’: Invesco Strategist

U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) at the headquarters of the Federal Reserve in Washington, on Sept. 21, 2022. Drew Angerer/Getty Images

As the Federal Reserve keeps raising interest rates in its attempt to bring down inflation, it’s running the risk of triggering a considerable economic slowdown, according to Invesco’s chief global market strategist Kristina Hooper.

“When you are raising rates in 75-basis-point increments and you’re not giving any time for it to process through and make its way through into the data, you’re playing a dangerous game,” Hooper said on a Bloomberg podcast. “And the more you’re doing it, the more likelihood you create of having a recession—and a significant recession.”

Since March this year, the Fed has raised benchmark interest rates by 300 basis points, pushing it up from a range of 0.25 to 0.50 percent to a range of 3 to 3.25 percent. The last three increases have been 75 basis points each.

Last month, Atlanta Fed President Raphael Bostic said that he expects the agency to raise interest rates by 75 points once again during its November policy meeting and then 50 basis points in December—taking the interest rate to between 4.25 and 4.50 percent.

Though the Fed is raising interest rates to control inflation, the agency’s action does not appear to have generated the desired effect even as upward price pressures have eased somewhat.

The Fed pushed interest rates by 300 points between March and September, however the 12-month inflation has consistently remained above 8 percent every single month during the period.

Inflation peaked at 9.1 percent in June and was at 8.2 percent in September. The Federal Reserve Bank of Cleveland’s Nowcast tracker estimates October inflation to be above 8 percent as well.

Recession Risks

In an interview with CNBC, JP Morgan Chase CEO Jamie Dimon said that the Fed waited “too long and did too little” as inflation rose to 40-year highs. He is predicting the United States to be in “some kind of recession” during the next six to nine months.

“It can go from very mild to quite hard and a lot will be reliant on what happens with this [Russia–Ukraine] war. So, I think to guess is hard, be prepared,” Dimon said about the recession while predicting volatile markets and potentially disorderly financial conditions.

Speaking to Fortune last month, Jay Hatfield, CEO of Infrastructure Capital Management, said that the Fed’s interest rate hikes are now excessively aggressive. The agency is “behind the curve” and is raising interest rates even though inflation slows.

This is due to the central bank using lagging indicators like the consumer price index, unemployment rate, and inflation expectations, he pointed out. Instead, the Fed should use leading indicators like energy prices, currency exchange rates, and money supply, Hatfield suggested.

Meanwhile, the state of the economy is a key issue among American voters ahead of the November midterms. A recent poll by Politico-Morning Consult showed that over 90 percent of voters were worried about the economy and the decades-high inflation.