MADISON, Wis.–The much hoped-for soft landing for the economy now may not be as soft as some had projected, according to a CUNA economist.
Dawit Kebede, senior economist with the trade group, said statements issued by the Fed’s Open Market Committee following last week’s meeting at which it raised rates suggest rates will be higher and will be elevated for longer than many economists and analysts had been projecting. And the result may be that the economy doesn’t rebound as quickly as some had hoped.
Kebede pointed out the committee’s projections for rates by year-end indicate the fed funds rate will stand at 4.4%, up a full percentage point over what CUNA had been projecting when the year began.
“What that means is with two (FOC) meetings remaining, they will have to raise rates by 75 and 50 basis points to meet those projections by year-end,” he said.
Moreover, Kebede noted the Fed is now saying it does not expect inflation will meet its 2% annual target until 2025, meaning rates will remain higher through 2024, and won’t be cut to fall into the 3% range until 2025.
‘Big Unemployment Increase’
“Unemployment is projected to go to 4.4% by the end of next year, up from 3.7% now,” he said. “That is a big unemployment increase in a short period of time that could signal a start of a recession if you go by historical standards.”
When one considers another economic indicator, the fact the yield curve has been inverted since July, Kebede added, “it appears the soft landing is becoming more unlikely as rates go up faster and higher.”
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