Unfortunately, in clinging to its backward-looking, data-dependent policy, the Fed shows no sign of changing policy course anytime soon. By so doing, the Fed risks setting us up for a harder economic landing than would be needed to contain inflation.

John Maynard Keynes famously wrote, “When the facts change, I change my mind. What do you do, sir?”

Now that the economic facts are rapidly changing for the worse, the Federal Reserve would do well to heed Keynes’s observation. Maybe then it would back down quickly from its current mantra that interest rates need to stay high for longer to bring down inflation. If, despite these new facts, the Fed persists with its hawkish monetary policy stance, we should brace ourselves for a hard economic landing.

Among the more disturbing new facts is the sudden loss of investor appetite, both at home and abroad, for long-term U.S. Treasury bonds. Investors are becoming increasingly concerned that the budget deficit is heading towards 8 percent of GDP at a time when the country is close to full employment. 

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