One Final Hike

The Fed is like a moving average.

Like the lagging indicator that responds to historical prices, the Fed reacts to historical data. Though the inflation rate is declining, it is still above the Fed's target rate, so the Fed needs to raise the interest rate. However, the recent bank failures signal that the rate may be a tad too high.

The market thinks that the Fed will raise the interest rate by 25bp. I concur with the market sentiment. This will probably be the last rate hike, though. Further rate hikes may quickly tip the economy into a recession, if it is not already heading into one.

Can the Fed guide the US economy to a soft landing? I would like it to, but history suggests otherwise. Perhaps this is because the Fed relies too much on market data to make its decisions - data that shows what happened in the last month or quarter. To achieve a soft landing, the Fed needs to be forward-looking, instead of looking at the rear view mirror.

Take a lesson from the traders. We know what happens to traders who rely solely on moving averages for trading. They are always a step behind.