Bank of America Expects Fed to Keep Raising Rates to ‘Pain Point’ for Consumer Demand Cryptocurrencies and ICOs

Bank of America warned that the Federal Reserve will have to keep raising interest rates until it finds “the pain point for consumer demand.” Expecting a slowdown in consumer demand to “lead to a full-blown recession,” the bank’s economist warned that “additional Fed hikes would also mean more pain for interest-sensitive non-consumer sectors such as housing.”

Bank of America Economic Warning

Bank of America senior economist Aditya Bhave released a note earlier this week warning that the Federal Reserve could raise interest rates beyond market expectations to bring inflation down to its 2% target. according to a note seen Per Fortune, the bank wrote:

The Fed will have to keep raising rates until it finds the pain point for consumer demand.

Bank of America added that at this stage, interest rate hikes of 25 basis points at the upcoming Federal Open Market Committee (FOMC) meetings in March and May “seem extremely likely.” The economist also noted that Bank of America recently changed its Fed forecast to include an additional 25 basis point interest rate hike in June. Bhave continued:

The resilience of demand-driven inflation means the Fed may have to raise rates closer to 6% to get inflation back on target.

Several other economists have warned that the Fed cannot hit its 2% inflation target without “crushing the economy”, including Allianz chief economist Mohamed El-Erian, who believes that “2% is not the right target”. .

Earlier this week, US Treasury Secretary Janet Yellen said that “disinflation is not a straight line.” Although she asserted that “there is more work to be done” given that “core inflation is still held at a level that is above what is consistent with the Fed’s objective,” the Treasury secretary dismissed the idea that a recession is inevitable.

Commenting on Yellen’s remarks, the Bank of America senior economist emphasized that “a recession seems more likely than a soft landing.” Bhaves opined:

A slowdown in consumer demand, which our analysis suggests is necessary for inflation to return to target, would likely lead to a full-blown recession.

“Consumer spending accounts for 68% of GDP, and additional Fed increases would also mean more pain for interest-sensitive non-consumer sectors, such as housing,” the Bank of America economist described. “Our base case is that a recession will begin in the third quarter of 2023. The risks are skewed toward a prolonged period of consumer resilience, more rigid inflation, and more Fed hikes. Either way, though, the lesson for investors is: no pain, no gain.”

Several Fed officials have already said more rate hikes are needed to control inflation. Earlier this week, Federal Reserve Bank of Atlanta President Raphael Bostic warned of “disastrous” economic consequences if the Fed loosens policy prematurely. Meanwhile, billionaire “bond king” Jeffrey Gundlach predicted “painful results” in the next recession, while economist Peter Schiff warned that the Federal Reserve could be fighting a “total economic collapse.”

Do you agree with the Bank of America economist? Let us know in the comments section.

kevin helms

Kevin, an Austrian economics student, found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects, and the intersection of economics and cryptography.