By MDart10 @

In the Financial Times, Alexandra Scaggs suggests that the Federal Reserve’s plan could be “hike until something breaks” and “try to fix whatever broke by cutting rates.” She writes:

As markets prepare for another 75bps rate increase from the Federal Reserve, Goldman Sachs have reviewed the historical rate-hike playbook for central banks in Group of 10 countries. It… isn’t entirely discouraging.

It goes a little something like this:
— hike until something breaks
— try to fix whatever broke by cutting rates

When it comes to the Fed, at least, the note appears to support the “pivot” that strategists and investors are expecting.

To summarise an October 30 note from the bank:
— Between 1960 and 2019, central banks of G10 countries have raised rates by a median of 200 basis points in the span of about 15 months.
— In three-quarters of those hiking cycles, central banks have taken a pause at some point in the process.
— The tightening has historically ended when inflation is still near its peak, and then central banks have started to cut interest rates seven months after the last rate increase.

As you may guess, however, there is significant variation between countries and over time.

Read more here.