Dawit Kebede

Economic Update examines Fed's updated monetary policy, inflation

May 5, 2022

CUNA Senior Economist Dawit Kebede explains the possible impact the Federal Reserve’s updated monetary policy will have on inflation through 2023 in CUNA's latest Economic Update

“If the Fed turns out to be particularly skillful and lucky, these [interest] rate movements will slow the economy enough to cool inflation without causing a recession. However, the risks are that the monetary tightening could cause a mild recession in 2023 or 2024.” Kebede said. 

Highlights from the April update include: 

  • Interest rates could surpass levels not seen since 2007: CUNA economists expect interest rates to reach 2.50% by the end of 2022 (2007 levels), rising to 3.25% by year-end 2023.  
  • Inflation expected to slow down: The rate of Core inflation rose by 0.3% in March compared to 0.5% in February. CUNA economists expect inflation over a 12-month period to slow down from a 40-year record high to 5.0% by the end of this year and 3.0% by the end of 2023.
  • The unemployment rate has fallen 40% over the last 12 months: Unemployment currently sits at 3.6%, with an estimated two openings for every job seeker. Low unemployment contributes to high consumer demand, affecting inflation. 

“It is very important to get inflation under control, which is why the Federal Reserve already started raising the federal funds rate, and also announced several increases throughout the year…. The goal is to lift rates so they prevent prices from going up, but not so high that they slow down economic activity," he added.   

Kebede also shared predictions on on the 10-year Treasury rate.

“Although difficult to forecast, we expect the 10-year Treasury rate to rise to 3.25% by December 2022, and to 3.5% next year.”