Is It Time for the Fed to Consider Pausing Rate Hikes?

The Federal Open Market Committee (FOMC) is poised to announce a 50bp rate increase in the federal funds rate and a "terminal rate" increase to 5-5.25%, says Bill McBride in the CalculatedRisk Newsletter. Despite more substantial rate hikes, rents are falling at a rapid pace, and Core CPI posted a negative one-month change in both October and November, likely due to a sharp slowdown in household formation.

Household formation surged during the pandemic but has dropped off in recent months, and according to McBride, inflation may be cooling faster than the Fed had originally anticipated.

Both CPI and core CPI were below expectations, and the year-over-year change is declining. Bond yields fell sharply this morning, and the 30-year mortgage rate will likely decline towards 6% today.

My view is inflation will ease quicker than the Fed currently expects and a pause in rate hikes should be considered.

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