The Federal Reserve waited too long to start fighting inflation and now runs the risk of dragging the economy into a recession, according to Bank of America’s top economist. On the heels of the central bank’s 75 basis point rate hike on Wednesday, BofA global economist Ethan Harris said the Fed was being forced into such aggressive measures by inflation now hitting its lowest pace. higher since late 1981. “Our worst fears around the Fed have been confirmed: they have fallen well behind the curve and are now playing a dangerous game of catch-up,” Harris said in a client note Friday. “We expect GDP growth to slow to near zero, inflation to stabilize around 3%, and the Fed to raise rates above 4%.” Harris does not yet foresee a recession, but said the probability of a recession occurring in 2023 has risen to 40%. Gross domestic product fell 1.5% in the first quarter and the Atlanta Fed expects the second quarter to be flat. Consecutive quarters of negative growth are considered a rule of thumb for a recession, although the National Bureau of Economic Research says it also uses other factors before making an official statement. Along with the rate hike, Fed officials said the benchmark funds rate would end the year around 3.4%, an upward revision of 1.5 percentage points from the March outlook. . Policymakers still forecast GDP growth this year of around 1.7%, but that would mark a substantial decline from 2021’s 5.7% pace. Harris said the scenario played out the same than a warning issued by the bank more than a year ago. “In the spring of 2021, we argued that the biggest risk to the US economy was a boom-bust scenario. We were concerned that the Fed would take too long to put the brakes on,” he said. “We asked, if the fiscal authorities are doing so much stimulus, why does the Fed need to add fuel to the fire with an unusually late policy normalization? Over time, the boom-bust scenario has become our basic forecast.” In November, Harris said he wondered “whether the Fed would ever take the fight against inflation seriously.” Separate statements on Friday confirmed the Fed’s verbal commitment to fight rising prices. Chairman Jerome Powell has pledged the Fed is “extremely focused” on inflation, while a Fed report to Congress on monetary policy said the approach would be “unconditional”. Although Harris said the Fed has put itself in a better position with rate increases, he thinks it will have to go further than the “dot plot” of individual members’ expectations indicates. The plot points to a median expectation of a 3.8% funding rate by the end of 2023, but BofA is looking for something over 4%. Five of the 18 Fed officials in this week’s dot chart indicated a rate above 4%. The chart then shows one or two rate cuts in 2024 to bring the funds rate down to 3.4%, before it settles to a longer-term rate of 2.5%. “Where we disagree with the Fed and the markets is the idea that the Fed will cut in 2024,” Harris wrote. “It is certainly possible if there is an outright recession. However, our baseline forecast assumes that the Fed will be like a deer in the headlights: it does not know whether to react to very weak growth or to persistently high inflation.