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What GDP Forecast Tells This Analyst About the Federal Reserve's Path Forward

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After much anticipation, the Federal Reserve announced its biggest rate hike since 1994 Wednesday, boosting its Fed Funds rate by 75 basis points to a range of between 1.25% and 1.5%.

Outside of the headline rates decision, Action Alerts PLUS co-portfolio manager Chris Versace said the Fed's GDP forecast could be signally a rockier road ahead for the U.S. economy as well as the market.

Full Video Transcript Below: 

CHRIS VERSACE: From my perspective, when I was listening to Fed Powell talk, he did a pretty good job of trying to convince the market that, yes, the Fed is going to be aggressive. It hasn't seen any signs that inflation has abated yet. They're going to go big as we talked about.

He obviously cued another 75 basis point rate hike at the next meeting in July, setting the stage for additional rate hikes through the balance of the year. The thing that jumped out to me, though, Bob, was the GDP forecast. Yes, they did cut it from 2.8% in March to now 1.7% for 2022. But when we take a look at that first quarter GDP print, negative 1.5%, the Atlanta Fed is sitting there calling for 0% GDP in the current quarter.

We really have to scratch our heads and wonder, what kind of math is the Fed using to get to that new 1.7% GDP forecast? There are so many forces that are moving against that forecast, whether it's the continued rise in the dollar, whether it's the slowdown we're seeing in the housing market as mortgage rates continue to trek higher and will likely do so even further, consumers that are not only borrowing, but they're living more on their credit card as interest rates go higher, sapping disposable income. To me, it's increasingly concerning that the Fed is going to miss the soft landing and more likely than not really torpedo the economy.

Find out how the Action Alerts PLUS investing club is approaching markets here.  

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