Fed Chair Jerome Powell sent a strong signal that the Fed’s bias is toward raising interest rates to curb inflation, which is not part of the baseline forecast, nor are we ready to add it. Odds are extremely high that the Fed does hike rates again, but the timing is unclear. Therefore, we are going to wait to make adjustments to the forecast.
The Fed has previously signaled that it plans two additional 25-bps rate hikes. Running this through our model, the impact on GDP, unemployment, and inflation is modest at best. For perspective, each 25-bps rate hike only shaves a few tenths of a percentage point off GDP growth over the course of the year.
