Moody's Mark Zandi warns that the Fed may become more aggressive in its actions than the market anticipates.

• It is predicted that the Fed will increase interest rates by a quarter point on Wednesday, marking its first rate hike since December 2018.
• Over 45% of participants in the recent CNBC Fed Survey anticipate the central bank increasing interest rates between five and seven times in 2023.
• The Fed's approach is being complicated by high inflation, a strong job market, and uncertainty surrounding Russia's invasion of Ukraine, according to Mark Zandi of Moody's Analytics.

Mark Zandi, Moody's Analytics' chief economist, predicts that the Federal Reserve will become more "hawkish" in its approach for the rest of 2022.

The Fed is predicted to increase interest rates by a quarter point on Wednesday, marking its first rate hike since December 2018 and signaling a significant shift from the easing measures implemented to support the economy during the pandemic.

The Fed's decision to raise interest rates is influenced by factors such as inflation, inflation expectations, the strength of the economy, and a robust job market. Additionally, uncertainty about the effects of Russia's invasion of Ukraine and supply chain disruptions complicates the decision-making process.

According to Zandi, if you add up all the factors, it appears that the Fed must increase interest rates rapidly, possibly quicker than they anticipate in their latest forecast, and potentially faster than what the markets currently expect.

According to the latest CNBC Fed Survey, nearly half of the respondents expect the central bank to hike rates five to seven times this year, with the rate hike cycle ending at a peak of 2.4%. However, half of all respondents believe the central bank may need to raise rates above neutral to control inflation.

Zandi expressed concerns about the possibility of stagflation, but he believes the Fed will take action to prevent it from occurring. He believes the Fed will not allow stagflation to happen because they know from historical experience that it can lead to a recession.

The probability of a recession in the U.S. in the next 12 months is seen by CNBC Fed Survey respondents at 33%, an increase of 10 percentage points from the February survey.

The bond market's recent activity, with the spread between two-year and 10-year Treasury bonds decreasing, has sparked concerns about a yield inversion, which has historically been a harbinger of recession.

Zandi stated that the fixed income markets are concerned about high inflation and inflation expectations, but resolving this issue without causing a recession is challenging. Currently, the bond market is indicating a high likelihood that the Fed will make a mistake and fail.

The Federal Reserve may struggle to control the economy due to various factors, as both I and others believe.

Federal Reserve Chairman Jerome Powell acknowledged the uncertainty in his appearance before Congress on March 2.

To effectively implement monetary policy in this unpredictable economy, we must remain adaptable and responsive to new information and changing perspectives.