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The Fed’s own economists are warning of a recession — warning that more rate hikes could hurt the US economy

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  • Federal Reserve economists said there is significant risk of a recession in the US next year.
  • They identified lagging consumer spending, headwinds abroad and tighter financial conditions.
  • The economist joins a long line of experts who warn that the US is heading for a painful recession.

The Federal Reserve’s own economists have sounded the alarm about a possible recession, warning that there is a serious risk that the US economy will slide into a painful recession next year.

Central bank officials identified increasing pressure on consumer spending, problems abroad and higher borrowing costs as short-term headwinds, according to the minutes of the Fed’s November meeting.

“Sluggish growth in real private household spending, deteriorating global outlook and tightening financial conditions were seen as key downside risks,” the minutes said, adding that a further rate hike could make matters worse. Could be worse.

Fed economists said it was a virtual gamble on whether the economy would disappear or go into recession in 2023.

“Staff therefore continued to assess that risks to the baseline projection for real activity were slanting to the downside and considered the likelihood of the economy entering a recession sometime next year, relative to baseline.” likely to happen.” read the minutes.

The Fed’s in-house economist has joined a long line of investors, officials, academics and other experts who are warning that a US recession next year is likely, if not inevitable. These calls have become louder in recent months as stubborn inflation raises the prospect of ever higher interest rates and more pain for consumers and businesses.

Inflation reached a 40-year high of 9.1% in June and remained at 7.7% in October, well above the Fed’s target of 2% per annum.

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Fed Chair Jerome Powell and his colleagues have responded by hiking from near zero to a range of 3.75% to 4% in March, and signaling rates could rise above 5% for the first time since 2007.

As a result, American consumers are facing the double whammy of rising prices and steeper interest payments on their car loans, credit cards, mortgages and other loans. The Russian invasion of Ukraine and the COVID-19 lockdown in China are also straining households as they have disrupted global supply chains and increased the cost of food, energy and other essential goods.

A bright spot in otherwise gloomy times was that the majority of Fed officials favored a slower pace of tightening so they can properly assess how the wave of rate hikes has affected the economy. The result in December could be a 50 basis point increase after four consecutive mega increases of 75 basis points.

Source: markets.businessinsider.com

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