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BNP Paribas: Fed's September rate hike is 'preventive', not start of new tightening cycle
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In an article published by格隆汇 on September 28, BNP Paribas strategist Chi Lo stated that while markets expect two more rate hikes, the Federal Reserve's September rate increase is unlikely to mark the beginning of a new tightening cycle similar to that of 2022-2023. Instead, Lo suggests it may signal the start of a 'preventive tightening' phase, aimed at reversing last year's three rate cuts to bring inflation back to target. He argues that further rate hikes will not resolve external shocks such as war and energy price inflation, but could alleviate financial market concerns about the Fed's anti-inflation credibility. Lo warns that the Fed cannot continue to ignore recurring or persistent shocks. However, by slowing other areas of the economy to curb inflationary pressures, further rate hikes also risk pushing the economy into stagflation.
Source report
September 28 — According to Chi Lo, a strategist at BNP Paribas, the Federal Reserve's anticipated September rate hike is unlikely to mark the beginning of a new tightening cycle similar to that of 2022–2023, despite market expectations of two additional rate increases.
Instead, Lo suggests the move may signal the start of a "precautionary tightening" phase, aimed at bringing inflation back to target by reversing last year's three rate cuts.
Key points from Lo's analysis:
- Further rate hikes will not resolve external shocks such as war-related disruptions or energy price inflation.
- They may, however, ease financial market concerns regarding the Fed's credibility in combating inflation.
- The Fed cannot continue to ignore recurring shocks or those that fail to subside as expected.
- There is a risk of stagflation, as slowing activity in other sectors of the economy to curb inflationary pressures could push the economy into a period of stagnant growth combined with high inflation.
Source
格隆汇Neutral / independent
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BNP Paribas: Fed September rate hike likely preventive, not start of new tightening cycle