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Navigating Downside Risks, Upside Surprises With Rising Rates
By Erik Norland
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Also consider that all the rate hike cycles between 1994 and 2018 happened in the context of low stable inflation. With inflation currently running at over 7%, a tight jobs market and rising wages, it’s easy to imagine persistent inflation forcing the Fed to raise further. 

Downside Risks

But there are also downside risks.  First, any equity market correction or a steep sell-off in the corporate bond market could hold the Fed back from raising rates as much as investors expect.  Second, geopolitical risks and higher commodity prices persist.  On the one hand, higher commodity prices are likely to push inflation higher in the short-term, but they can also hurt consumer spending and slow growth.  Rising prices for food and energy might cause the Fed to slow rather than accelerate rate hikes. 

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About the presenter

Erik Norland
Erik Norland, Executive Director & Chief Economist, CME Group

is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their potential impact on CME Group's various asset classes, ranging from interest rate products to energy and agriculture. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical developments.

 

 

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