Saudi Press

Saudi Arabia and the world
Thursday, Jul 24, 2025

'Markets are going to get rocked' as Fed is likely to push rates higher, economist warns

'Markets are going to get rocked' as Fed is likely to push rates higher, economist warns

Markets are going to get rocked as the Federal Reserve pushes interest rates higher, said top Fed watcher Ricardo Reis.
The Federal Reserve is likely to raise interest rates more than the markets now expect, says Ricardo Reis, an economist at the London School of Economics.

“Markets are going to get rocked,” Reis told MarketWatch on the sidelines of the American Economic Association annual meeting in New Orleans on Saturday.


“All the risks are on the upside. A rate of 5.5% is the minimum,” he added.

Last month the Fed raised the top end of its benchmark rate range to 4.5%. The central bank penciled in a 5.25% terminal rate.

Investors who trade in the fed-funds futures market now expect the Fed to stop raising when rates get to 5%.

Reis thinks the central bank will ultimately move rates higher.

The Fed is burned by failing to recognize the persistent upward move of inflation in 2021, he said.

“So I think they are biased toward over-tightening,” he said. “Either legitimately or because they are worried about fixing their past mistake, there are going to be tighter than you think.”

The economy is at a turning point and the Fed does face some “tough calls,” Reis said.

The key going forward is the path of wages.

Workers need to have their wages go up because their paychecks have not kept up with inflation.

So the Fed is going to have to gauge if the rise in wages is too much, just right or too little, he said.

If wages don’t rise much, inflation can quickly return to the Fed’s 2% target, he said.

If wages rise in line with productivity, the Fed won’t have to raise too much and inflation will come down to 2% in a few years.

This will be difficult because productivity is an economic variable that is hard to measure.

If wages spike, this would probably cause companies to continue raising prices, kicking off a wage-price spiral, Reis warned.

The Fed might overreact to the rise in wages, he said.

There is a scenario where rates go up “much more,” Reis said. But there is a range — it could be “much much more” or “much more” or “just more.”

Reis said that he was sympathetic to the idea that raising the unemployment rate to 5.5% was not a terrible outcome if it means a return to low inflation.

The unemployment rate hit 3.5% in December.

Stocks moved sharply higher Friday when the government reported relatively slow increase in wages in December.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Russia Formally Recognizes Taliban Government in Afghanistan
Mediators Edge Closer to Israel-Hamas Ceasefire Agreement
Emirates Airline Expands Market Share with New $20 Million Campaign
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Trump Asserts Readiness for Further Strikes on Iran Amid Nuclear Tensions
Iran's Parliament Votes to Suspend Cooperation with Nuclear Watchdog
Trump Announces Upcoming US-Iran Meeting Amid Controversial Airstrikes
Trump Moves to Reshape Middle East Following Israel-Iran Conflict
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
Explosions Rock Doha as Iranian Missiles Target Qatar
“You Have 12 Hours to Flee”: Israeli Threat Campaign Targets Surviving Iranian Officials
Oman Set to Introduce Personal Income Tax, First in Gulf
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
WATCH: Israeli forces show the aftermath of a massive airstrike at Iran's Isfahan nuclear site
We have new information and breaking details to share about what is shaping up to be a historic air campaign tonight
Six Massive Bombs Dropped on Fordow; Trump: 'A Historic Moment for the U.S., Israel, and the World'
Fordow: Deeply Buried Iranian Enrichment Site in U.S.–Israel Crosshairs
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Pakistan to nominate Trump for Nobel Peace Prize.
Israel Confirms Assassination of Quds Force Commander in Tehran
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
G7 Leaders Fail to Reach Consensus on Key Global Issues
Mass exodus in Tehran as millions try to flee following Trump’s evacuation order
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
×