On Tuesday’s broadcast of CNN Worldwide’s “First Move,” Moody’s Analytics Chief Economist Mark Zandi acknowledged that the February inflation report does justify a hike in rates of interest as a result of inflation is “still a little on the hot side.” However, given the stress on the banking system, it’s higher for the Fed to pause.
Zandi mentioned, “I think if we just saw that inflation print, you’d say, okay, look, it’s still a little on the hot side. The economy’s still strong, we’re creating a lot of jobs, unemployment’s low, yeah, I would raise rates probably a quarter point if I were on the Fed meeting next week. But, of course, lots of other stuff going on here, but, by itself, yeah, I think it would justify a rate increase.”
He added, “The banking system is under a lot of pressure, a lot of that goes back to the very rapid increase in now-high interest rates. And the Fed took some pretty extraordinary measures here, along with the other regulators in the Biden administration, but the Fed set up this credit facility for banks to use if they need liquidity, if they need cash. So, in that context, hard to imagine that they would actually raise rates. Why not pause, take…a look around, see what damage these events in the banking system [have] created, and then make a decision at the May meeting? I suspect they’re not going to raise rates at the meeting next week.” And “I think you want to see, first of all, there’s a lot of uncertainty with regard to what is going to transpire here in the banking system. I think you would want to wait and see what is the broader fallout on the system.”
Zandi additionally acknowledged that there could possibly be disinflationary impacts from the financial institution stress.
Comply with Ian Hanchett on Twitter @IanHanchett
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