A fourth Fed hike This kind of year could trigger economic slowdown

While many may welcome the more hawkish stance through the Federal Reserve after a decade of record-low interest rates, one economist warned in which This kind of may actually lead to an economic slowdown.

The Federal Reserve hiked rates for the second time This kind of year Wednesday along with also is usually looking at two more for 2018 amid observations of a strong outlook for the U.S. economy. nevertheless Jim McCaughan, the chief executive of Principal Global Investors, said there are risks involved.

“The way I interpret This kind of is usually, one further rate increase is usually probably the right answer for the rest of the year,” he told CNBC’s “Squawk Box Europe” Thursday, espousing a more doveish route for the monetary policy-setting body. His investment fund, based inside U.S., has $311 billion in assets under management.

“Two further is usually probably what they’ll do, nevertheless they run the risk then of getting to the ultimate level fairly quickly along with also causing some slowness inside economy, which will bring about an inverted yield curve much sooner than This kind of needs to happen.”

An inverted yield curve is usually typically a telltale sign of a coming recession, as This kind of indicates in which short-term lending is usually perceived by markets as riskier than long-term lending along with also therefore the economy is usually doing much worse inside present than This kind of will do inside future.

McCaughan justified his argument by pointing to what he saw as a disparity between the consumer cost index (CPI) figure published by the U.S. Bureau of Labor Statistics along with also the actual rate of inflation, which he said is usually lower than the published figure. This kind of is usually due, the CEO said, to the effect of technology inside U.S. economy improving product along with also service quality along with also therefore enabling lower along with also more competitive prices on many goods in which the CPI calculation doesn’t yet take into account.

“So when we get to a reported level of 2 percent for inflation, the usual central bank target, the inflation rate in reality will be only around 1 percent,” McCaughan argued. “This kind of means in which a 3 percent ultimate Fed funds rate might be 2 percent real, which is usually high for a cash rate, along with also could actually be contractionary on the economy … Or an excessively restrictive monetary policy.” Wednesday’s move by the Fed pushed the funds rate target to 1.75 percent to 2 percent.

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