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What Are the Odds the Fed Hikes Interest Rates to 8 Percent?

8 Percent “Prediction” or “Possibility”?

This headline by TFTC caught my eye: JP Morgan Predicts Crushing 8% Interest Rate Spike

JP Morgan forecasts interest rates rising to 8%, potentially triggering a recession and banking crisis similar to past financial downturns.

JP Morgan, the largest bank in the United States, has released a 61-page shareholder letter predicting an increase in interest rates to 8%—a figure that hasn’t been seen since the era of the late eighties. This dire forecast comes on the heels of staggering stagflation numbers and warns of potentially catastrophic consequences for the economy and the banking system.

The last time the country grappled with 8% interest rates, it triggered the recession during the first Bush administration, resulting in mortgage rates soaring to 10% and ten-year bond yields hitting 9%. The implications of such rates in today’s climate could be devastating. An analysis suggests that the housing market, already struggling, would face further decline, with a 7% rate hike serving as a crippling blow to prospective young American homeowners, increasing their purchasing costs by an estimated 50%.

No Such Prediction

That sounds dire, and it surely would be. However, Jamie Dimon, CEO of JPMorgan, made no such prediction in its 2023 Annual Shareholder Letter (link repeated from above). Here is the pertinent snip:

Equity values, by most measures, are at the high end of the valuation range, and credit spreads are extremely tight. These markets seem to be pricing in at a 70% to 80% chance of a soft landing — modest growth along with declining inflation and interest rates. I believe the odds are a lot lower than that. In the meantime, there seems to be an enormous focus, too much so, on monthly inflation data and modest changes to interest rates…

…click on the above link to read the rest of the article…

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