Economists are warning of a serious recession in America if the Federal Reserve does not keep up the fight against inflation. “Each adverse development in the outside world implies the Fed is going to have to do more in order to bring the situation under control,” said one economist.
Economists Warn of Deep Recession Resulting From Fed’s Response to Inflation
A growing number of economists have warned that the Federal Reserve’s fight against inflation, which remains at the highest level in decades, could lead to a severe recession in the U.S. At the upcoming Federal Open Market Committee (FOMC) meeting Wednesday, the U.S. central bank is expected to raise interest rates by another 75 basis points — the fourth 0.75 percentage point increase in a row. However, several economists cautioned that policymakers’ response to inflation could lead to a more severe downturn for the U.S. economy, the Financial Times reported Tuesday.
“Each adverse [inflation] report and each adverse development in the outside world implies the Fed is going to have to do more in order to bring the situation under control,” David Wilcox, a senior fellow at Peterson Institute for International Economics, was quoted as saying. He also said:
A higher chance of recession is associated with doing more. [it]This is most likely to lead to a wider recession.
Franklin Templeton Fixed Income Group’s chief investment officer, Sonal Desai, opined: “The reality is we are going to need to see some slowdown in the economy to take some of that demand-side pressure off.”
ING’s chief international economist, James Knightley, warned: “By moving hard and fast, you just naturally have less control.” He elaborated:
A higher terminal rate means that borrowing costs can continue rising at a greater pace. [which]This suggests a growing danger of a very severe downturn.
TD Securities’ global head of rates strategy, Priya Misra, noted: “If you look at the U.S. data, it is very hard to argue why they need to downshift. But the moment you look at the global picture, the U.K. situation should give them caution to downshift without pivoting.”
TS Lombard’s chief U.S. economist, Steve Blitz, explained:
What’s at stake if they make the wrong call is that inflation stays higher, and that means at some point down the road they’ll have to do even more to get inflation back to 2 percent.
Jerome Powell, Fed Chair, did not exclude the possibility that there would be a recession following the September FOMC meeting. “No one knows whether this process will lead to a recession or if so, how significant that recession would be,” he told the press. Powell is also facing political pressure over the Fed’s interest rate hike decisions.
Survey of 257 economists found that nearly all believe the global recession is coming. According to another survey, 98% of CEOs are planning for a U.S. economic recession. Recently, Rich Dad Poor Dad author Robert Kiyosaki stressed that the Fed’s continued rate hikes would destroy the U.S. economy, leading to market crashes. Peter Schiff, an economist, warned similarly that Fed rate hikes could cause market crashes and severe recession.
Do you think the Fed’s response to inflation will lead to a severe recession in the U.S.? Leave your comments below.
Image creditShutterstock. Pixabay. Wiki Commons
DisclaimerThis article serves informational purposes. This article is not intended to be a solicitation or offer to sell or buy any product, service, or company. Bitcoin.com doesn’t offer investment, tax or legal advice. This article does not contain any information, products, or advice that can be used to cause or alleged result in any kind of damage.