“We shall stay the course until such time we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner.”
Bloomberg 19 januari 2023
Markets expect the Fed to start cutting interest rates within a year as growth slows.
But if the Fed is serious about reducing inflation to 2% and keeping it there, it will need to keep rates high until wage growth cools—even if that brings about a recession.
Should America face a downturn, it is likely to take Europe with it.
Despite falling energy prices, the euro zone also has an underlying inflation problem, as is apparent in rising wage growth. Christine Lagarde, the head of the European Central Bank, has warned that interest rates will have to rise significantly, contrary to the more doveish expectations of investors.
The Economist 26 January 2023