The United States Federal Reserve faces a suddenly tricky decision over how to keep pressure on the economy to slow inflation without pushing a swath of midsized banks to the snapping point.
Analysts trying to parse what recent bank stress might mean said a coming credit contraction could be the equivalent of an additional quarter-point Fed rate increase, or as much as a recession-inducing 1.5 percentage points, rendering further rate hikes obsolete.
KPMG chief economist Diane Swonk went further, saying the Fed should not only delay any further rate hikes, but also withhold economic projections scheduled to be released at the conclusion of this week’s meeting because they would “create more chaos than clarity.” But her recommendation – and she wasn’t alone in suggesting the Fed might delay its quarterly Summary of Economic Projections – also hinted at the risks involved when a central bank does anything unexpected.
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