Taps Coogan – March 3rd, 2022

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As the following chart from Charles Schwab’s Liz Ann Sonders highlights, the last two times the Fed tackled major inflation overshoots it ended badly.

Indeed, the Fed’s track record for success in tackling large inflation overshoots without causing a recession is, as far as we can tell, zero. The only times that rate hike cycles have not led recession within a couple years is when they have proceeded and then negated any major inflation overshoot, such as in the mid cycle tightening in 1994 when the Fed hiked the Fed Funds rate from 3% to 6% while inflation never exceed 3%.

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