Fed Funds to rise further

In this post, I compared the change in global Central Bank discount rates with an indicator of global economic growth, the 'Big 8' GDP-weighted average PMI.  The chart below shows the same relationship, except for the USA, using the Fed Funds rate (the Federal Reserve Bank's discount rate) and the ISM (Institute of Supply Management) national survey, which has a very good record of picking big and smaller cycles in the US.

Although, on past behaviour, the Fed Funds rate should be peaking soon, I suspect that the Fed won't stop tightening until inflation has peaked, even if the US economy starts to go into recession.  

Core inflation, i.e. excluding the direct impact of fuel and food prices, has likely peaked, as you can see in the chart below.  But the Fed will prolly go on raising rates until core inflation gets back to ±2%.  And although the PMI and ISM  surveys suggest that the economy is slowing, they're still above the 'recession line' of 50%, and payroll employment is still growing by 400,000 a month.  The Fed is unlikely to be dissuaded from raising Fed Funds until the slowdown is much more obvious.  So the risk is that by the time core inflation is back at 2%, the downward momentum in the economy will be so strong that recession will be unavoidable.