The first part of this article explains how the Fed is probably going to raise interest rates by three quarters of a percentage point, making it the fourth straight increase. With the massive increase of interest rates these past couple months, people are wondering if the Fed will send the economy into a recession. This is a scary couple months for the economy because the former central bank chairs and current Treasury Secretary never had to raise rates this many times in a row by such large amounts.
Due to the increase of interest rates, the effects have already started to show. The housing market is in some strain, bond yields have been spiking, and mortgage rates have skyrocketed this year. The thoughts of a recession keep growing and growing, but as long as the jobs market remains semi healthy, the Fed is most likely going to focus on the price stability mandate. A big worry in the Feds strategy is that they are looking too much into he current data and not thinking enought about the lag effect in the future. It is almost a given at this point that a recession is going to happen, so the Fed should worry about lessening the damage it actually causes to the US.
There’s another factor at play that could lead the Fed to raise rates sharply at its next two meetings and then slow down its pace. Every year there is a rotation of regional Fed presidents who vote at centraal bank meetings. The change takes place before the first meeting of the new year which could call for a change in support from a hawk stance (higher rates) to a dove stance (against future raises). Which would drastically change how our economy would function.
https://www.cnn.com/2022/10/30/investing/stocks-week-ahead/index.html
I believe one of the undesired affects rising rates are going to create is drastic slowing of GDP. The forecasts for GDP growth are abysmal over the next few years.
ReplyDeleteIt is important for consumers to continue to spend (reasonably) when hearing the word recession. If consumption halts and interest rates spike, we will go into recession. If we can continue to fuel the economy then we can continue growth and not enter a recession.
ReplyDeleteThe consumer consumption has seemed to be quite sticky and the Fed efforts have not been working to slow inflation thus far, I believe the Feds tightening on inflation is going to a catalyst to a recession, as the economic outlook looks dim in the future.
ReplyDeleteIt seems like the economy is facing an inevitable recession from your findings. It'll be interesting to see how a possible shift in the Fed hierarchy could maybe affect monetary policy in the future.
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