Ken Rogoff says the Fed's aggressive rate hikes will cause mild recession

According to Ken Rogoff, Harvard University professor of economics and author Ken Rogoff, investors should pray for a mild recession due to the Fed's aggressive interest rate hikes.

The idea that it's going to be a very mild recession is what Rogoff said on Yahoo Finance Live video above. The dollar is very strong and interest rates are rising very fast. Once the numbers start to set in, it's going to be a tough trade-off for the Fed. For months, investors have been pricing in the possibility of a recession in 2023, as the Federal ReserveFederal Reserve continues to push out inflation by forcefully jacking up interest rates, which has set the pace for other central banks to do the same. In the past week, the mission was reinforced by the hawkish commentary from various Fed officials including Fed Chair Jerome Powell, Vice Chair Lael Brainard and Minneapolis Fed President Neel Kashkari.

The Fed has pushed for a more hawkish tone across an array of asset markets, from the surging U.S. dollar to rising mortgage rates that are close to 7%.

The Dow Jones Industrial Average DJI S&P 500 GSPC and Nasdaq Composite IXIC remain stuck in double-digit percentage declines for the year despite impressive rallies in the first two trading days of October. Emerging markets are under considerable pressure as investors wait for the next shoe to drop from central bankers.

Rogoff explained that the Fed's long-lagged effects hit the markets very quickly. The peak effects can be a year off for things like employment. It's one of the things that makes it hard for the Fed to get to a soft or soft landing, which I'm very skeptical about. Incorporating corporate America, such as Nike NKE and FedEx FDX, which are exposed to currency market volatility, has been a factor in rising interest rates.

As growth slows, layoffs in the tech industry and others have started to emerge. Challenger, Gray Christmas found that U.S. employers announced 29,989 job cuts in September, up 46.4% from August.

Given the volatile backdrop, Rogoff didn't rule out a tougher than expected recession in the U.S.

He said that it could be pretty brutal if the Fed really wants inflation to come down as quickly as possible to 2% or 2.5%. We have Europe very likely going to go into a recession, China is in a growth recession by all measures, that's a lot of pressure on us. Sozzi follows BrianSozzi on Twitter and LinkedIn.