That’s a bold prediction in the title. I believe it will come true.
Given the uncooperative CPI reading we just got yesterday, it seems possible that the Fed will hike one more time before putting away the hiking boots. Or it might not. Either way, this rate hike campaign, notable for its speed and aggression, is close to being done.
With real rates positive and inflation down significantly from the highs, the Fed will recognize that it has done enough (for now) and will pause. For sure, there will be some language in the directive that says it will remain vigilant on inflation and is prepared to hike rates more if necessary, but the Fed pretty much has to put that in there. For all intents and purposes, though, it should be done.
Here comes the interesting part: In all the rate hike cycles going back to the great inflation of the 1970s, the Fed has never maintained rates at the peak for more than nine months. The Fed typically does not underreact to things on the upside or the downside. It does too much, and that is true today, too.
The banking system is under an enormous amount of stress, as the yield curve has been inverted for almost 15 months. Conventional wisdom dictates that we would have had a recession by now, but we still have so much money sloshing around from the pandemic stimulus that it hasn’t happened yet.