The Federal Reserve Open Market Committee raised their target for overnight interest rates 0.75%, the third increase of that magnitude, and easily the fastest pace of hikes in any three month period in four decades.

Policy errors come in many forms. In 2007, the European Central Bank (ECB) tightened policy on the verge of severe recession. In 2018, the Federal Reserve hiked while the rest of the world was in easing mode, creating fractures in money market plumbing that contributed to the financial market mayhem in 2020. Today, while there is no denying that monetary policy is responsible for reducing forward-looking inflation, the extreme pace of these hikes risks invoking the old tech startup adage, “Move Fast and Break Stuff!” But the global economy is not a tech start up with a huge right tail and a high tolerance for failure, and there are early signs that stuff is indeed breaking. One need only look to the J.P. Morgan Emerging Market FX index, now trading at an all-time low, to guess what that breakage might be.

Continue to read full PDF

About the author

Guy LeBas

Director, Custom Fixed Income Solutions

Read more from Guy LeBas

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/