With the Federal Reserve indicating that he has no intention of stopping the hike interest rate until inflation cools, experts fear that such actions will end up plunging the country further into recession.
The 12-month Consumer Price Index (CPI), which measures annual inflation, has remained stubbornly at or above 7.5% for every month this year. The Fed announced its fourth straight interest rate hike of 0.75% on Wednesday, pushing benchmark interest rates to a range of 3.75-4.00%, up from the 0 .25% of the beginning of the year.
“Every adversary [inflation] report and every unfavorable development in the outside world implies that the Fed will have to do more to bring the situation under control,” said David Wilcox of the Peterson Institute for International Economics, according to the Financial Times.
“Doing more means a higher probability of recession, and if [it] there is, in all likelihood, a deeper recession.
During press conference on November 2, Fed Chairman Jerome Powell dashed investors’ hopes that the central bank could ease its monetary tightening.
Such expectations are “very premature” and the agency “still has some way to go” when it comes to raising interest rates, he said, while adding that the ultimate level of interest rates interest will be “higher than expected”.
At the September meeting of the Federal Open Market Committee, the Fed had forecast interest rates to rise to 4.4% this year, then to 4.6% in 2023, before easing off in 2024.
A investigation of 40 economists by Bloomberg last month found that they expected interest rates to hit 5% by March 2023. While 75% of economists expect a recession in the next two years, the majority of the remaining experts predict a hard landing with a period of or zero growth.
Some economists believe that the recession hitting the United States would be benign. But not according to Aneta Markowska, chief financial economist at Jefferies in New York.
“It might start out looking like a mild recession, but then intensify as we move forward in time,” she said. said at Bloomberg. Markowska expects an economic slowdown to occur in the third quarter of next year, eventually pushing the unemployment rate to around 7%.
Business sentiment is also negative. A Conference Board survey released last month found that 98% of CEOs were preparing for a recession in the United States.
According to the National Association for Business Economics (NABE) October 2022 investigationtwo-thirds of business economists think the US is either already in a recession or is “more than even likely” to be in one within the next 12 months.