The Fed is trying to tame inflation without starting a recession

The Fed is trying to tame inflation without starting a recession

Stock market traders do not care what is the reason behind the recent deflation. Excited by the dream of artificial intelligence, they have been driving up the prices of big tech companies like Nvidia, Apple, Meta (Facebook), Alphabet (Google), Tesla and Microsoft since the fall. As I wrote recently, cruise lines such as Carnival, Royal Caribbean and Norwegian Cruise Line are booming due to increased demand from consumers looking to see the world in the comfort of the ocean.

At this point of time, for the markets, the sky seems to be the limit.

And yet, I worry.

The reasons for the decline in inflation are not only of academic interest. For example, if the Fed raises interest rates No So far there has been little impact on the overall economy, this can only be because they famously operate with “long and variable lag”, and they may still bite – even if inflation is waning for other reasons.

However, some painful effects can already be observed. High credit card rates are adding to the woes of consumers. Bond losses due to rising rates have contributed to the weakness of regional banks. Expensive mortgages have hurt housing and commercial real estate, while the migration to working from home has reduced office occupancy. No one knows how long this will last.

Interest rates rise so fast it usually “causes a recession”. Ian Shepherdson, the chief economist at Pantheon Macroeconomics warned in a presentation to clients this month. credit crunch Small businesses are also left with no help due to troubled regional banks. Mr. Shepherdson is not saying that there will definitely be a formal recession, but he said that slower growth is coming.

The majority opinion on Wall Street is still that there will be a recession over the next 12 months, a wall street journal This month’s survey found out. But due to the onslaught of data indicating that the economy remains in growth mode, many economists are downplaying the likelihood of a recession, and expect that if a recession does occur, it will be mild.

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