The Fed’s recent rate hikes have pushed the real interest rate, adjusted for core CPI inflation, to 2.33%, its highest level since October 2007. Over the past two years, real rates have surged by nearly 8 percentage points, surpassing pre-pandemic levels. Historically, when rates become this restrictive, the U.S. economy has often experienced a downturn shortly afterward. This is why the Fed waited too long. Powell should have used the term “softer” landing instead of soft. Because even a softer punch from Mike Tyson hurts.
