Are Fed inflation forecasts worthless? Ritholtz Wealth CEO Josh Brown has epic answer.

When Powell goes out of his way to tell you how high rates are going to go and for how long they'll stay there, remember that he doesn't even know what they're going to be doing next month, let alone by the end of the year. The Fed's forecasts are as worthless as anyone else's.

At their first rate policy meeting of 2023, the Fed hiked overnight bank-to-bank lending rates 0.25%, which was the eighth straight hike since March 2022. In all, these hikes total 4.5%, and overnight bank-to-bank lending rates that the Fed controls are now 4.75%. Here’s a summary of those hikes:

+0.25% February 1, 2023
+0.5% December 14, 2022
+0.75% November 1, 2022
+0.75% September 21, 2022
+0.75% July 27, 2022
+0.75% June 15, 2022
+0.5% May 1, 2022
+0.25% March 15, 2022

The Fed’s goal is, of course, to get inflation back down to their 2% target range. It has helped inflation, but there’s a long way to go:

– Headline CPI peaked at 9.1% in June 2022
– As of December 2022, Headline CPI is at 6.5%
– Core CPI which the Fed prefers peaked at 6.6% in September 2022
– As of December 2022, Core CPI is at 5.7%
– And we get January CPI data on February 14

Closer to housing, here’s how the Fed hikes have played out:

– 30yr fixed mortgage rates peaked October 20, 2022 at 7.375%
– Now 30yr rates are closer to 6.125%
– Rates dropped as mortgage bond investors started buying again
– They’re buying on belief in Fed resolve to squash inflation

We all have to watch this because we’re all impacted, and watching Fed stuff leads to SO much chatter.

That’s why we need certain folks to hit us over the head sometimes with the truth. My friend Josh Brown at Ritholtz Wealth Management did that this week with this LinkedIn post.

The Takeaway: you need to invest based on your profile, time horizon, and objectives — not chatter about Fed actions or any other shorter-term market action. This goes for retirement investing as well as housing.

Well done as usual Josh.

Now listen up and listen good. Last May 4th, Fed Chairman Jay Powell told a press conference that “A 75 basis point increase is not something that the committee is actively considering.” Five weeks later, the Fed hiked rates by 75 basis points. Then he did another 75 basis points, then another 75 basis points, then another 75 basis points. Four in a row.

So today, when Powell goes out of his way to tell you how high rates are going to go and for how long they’ll stay there, remember that he doesn’t even know what they’re going to be doing next month, let alone by the end of the year. The Fed’s forecasts are as worthless as anyone else’s. That’s why they say they are “data dependent.” Invest like an adult, not a child who believes in clairvoyance.