Deutsche Bank economist Jim Reid said that a recent statistical chart surprised him. Based on data from the past nearly a century, when the Federal Reserve started its interest rate cut cycle, the median CPI was still as high as 4.4%.
The chart above shows the median U.S. CPI at the beginning of the Fed's 13 interest rate hike cycles over the past 70 years, as well as the CPI value at the beginning of the interest rate cut cycle after the interest rate hike cycle. Three points can be seen from this.
First, when raised interest rates for the first time, the median CPI was only 2.5%. Therefore, the Federal Reserve has always tended to start fighting inflation at an early stage. However, this time the United States waited until the CPI reached 8.5% before starting to raise interest rates.
Second, when the interest rate was cut for the first time, the median CPI was still as high as 4.4%, which shows that most of the Fed's interest rate decisions are looking to the future rather than based on current scenarios. Jim said he was surprised when he saw this data for the first time. If calculated based on this data, a 36bp interest rate cut between March and December 2023 is worth looking forward to, even if inflation remains high.
Third, the interval between the last interest rate increase and the first interest rate cut is usually only 4 months. Such a short period of time is also surprising, so after the end of this round of interest rate hikes, interest rate cuts may begin quickly.
Jim said that in history, when inflation is still high, interest rates may begin to be cut. There is no discussion on whether the policy is correct, but this is history. However, one thing that is different about this round of interest rate hikes is that inflation was already at a very high level when the interest rates were raised for the first time, so it remains to be seen whether the timing of the interest rate cut will change.
This article comes from Wind information
