Fed interest rate hikes may be excessive due to inflated inflation data, warns Duke professor

The Federal Reserve is being misled by outdated inflation numbers in the consumer price index (CPI), says Duke professor Campbell Harvey, developer of a popular recession predictor.

Private sector data shows housing costs rising far slower than the 6% annual rate indicated in the CPI shelter component.

Relying on inaccurate CPI data could lead the Fed to raise rates excessively, derailing the economy when inflation is already around the 2% target, Harvey argues.

The Fed's interest rate hikes in 2023 were justified by above-target inflation, but real-time private data shows prices cooling.

Harvey says "we need to snap out of it" and not base policy decisions on inflated CPI numbers that could slow growth unnecessarily through higher borrowing costs.