The two wildcards that could decide what happens next to interest rates

, although he did say the central bank doesn’t expect to cut its federal funds rate – it’s now targeting a range of 5 to 5.25 per cent, the highest since mid-2007 – this year. That’s at odds with the bond market, which is pricing in an unwinding of the rate rises from as early as September.

Instead, the committee said that, in determining the extent to which more policy firming might be appropriate, it would take into account the cumulative tightening of policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments.

A contraction in lending is akin to an increase in interest rates and would occur on top of the contractionary effects of a monetary policy that now sees the federal funds rate above the US inflation rate. With the Republicans demanding cuts to core Biden administration programs as the price of lifting the debt ceiling and Joe Biden insisting on a separation of the debt ceiling issue from any discussion about reducing budget deficits, the odds on a default are now probably as short as they have ever been in the long history of political brinkmanship over the debt limit.

They might be right and, even without the wildcards, the recession might be something other than mild. The copper price is down about 6.5 per cent and the oil price 17 per cent despite the OPEC+ production cuts – 1.2 million barrels a day – that are supposed to be implemented this month.

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