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Don’t Fight the Fed, But Don’t Lose the Thread

The U.S. Federal Reserve is likely to pause rate hikes in 2023. At least three factors will drive the decision on when and at what rate to pause.

This is my first installment of a series of essays exploring global economic and financial themes. While many of these essays (including today’s) will focus on the U.S. Federal Reserve as one of the world’s major monetary policymakers, in future essays I will also offer my perspectives on the global economy and financial markets more broadly. My aim is to help readers extract signal from noise and spot emerging trends hidden in the gusher of economic and financial data that flood our inboxes and fill our screens every day.

We’re concluding a turbulent year in U.S. and global financial markets – and a deeply painful one for most investors. Major drivers of the tumult were the decisions by the Fed and other major central banks to undertake abrupt and correlated (if not coordinated) hawkish monetary policy pivots to try to get ahead of an inflation curve that has turned out to be hockey-stick steep, distressingly persistent, and broadly evident in both price and wage data (see Figure 1).

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Richard Clarida

Global Economic Advisor

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