Higher for Longer

Powell: Higher for Longer than You Can Imagine
Sea Change
The End of Financial Repression?
It’s Not Just the US
Feliz Navidad and Año Nuevo

This will be my last letter of 2022. I want to use this letter as a set-up for my annual forecast issue the first week of January. That means we will touch on a variety of topics, kind of a snapshot into where my mind is today. Get ready to travel the world but let’s start at home with the Federal Reserve meeting this week.

Powell: Higher for Longer than You Can Imagine

There is this constant argument that Jerome Powell (can I call you Jay?) is somehow going to pause after the next rate hike, and then begin to cut rates in the late spring or summer because the economy will soften and inflation will have returned to the Fed’s target range. Bottom line up front: I think that view is completely wrongheaded.

I am sure that you have seen the various versions of the “dot plot,” the anonymized chart of where all the regional Fed presidents and board members believe rates will be in the future. It is a good place to start our analysis. I am going to use one from Sam Rines because his has some rather appropriate humor in it. Note he highlights the predictions for 2023 and then circles the two highest rate predictions in 2024 and 2025. He quipped: “a Xmas tree … and we see you Bullard.”

Source: Samuel Rines


  1. Rates will be higher for longer. The median Fed funds rate is expected to average 5.1% in 2023! That is nowhere near expectations and, if the dot plot is right, is off by at least (estimating) 40‒50 basis points.
  2. The consensus shows rates dropping to 4% in 2024. I see the longer-term “guesses” and that is just what they are. That is too long into the future to have anything more than cursory predictive value.