The Fed Is Trying to Cure Inflation Without Starting a Recession

Stock market traders don’t seem to care what lies behind the recent disinflation. Dreaming of artificial intelligence smashing successes, they’ve been driving up prices for tech giants like Nvidia, Apple, Meta (Facebook), Alphabet (Google), Tesla and Microsoft since the fall. As I wrote recently, cruise lines like Carnival, Royal Caribbean and Norwegian Cruise Line are booming due to pent-up demand from consumers who want to see the world from the comfort of their own waters. .

At the moment, it seems like a limit for the market.

Still, I worry.

Academic curiosity isn’t the only reason inflation is falling. For example, with the Fed raising interest rates, no It has had a huge impact on the economy as a whole so far, but that may simply be because it is famous for its “long and fluctuating lag”, and even if inflation had been lower for other reasons, it would still have an impact. may give

However, some painful effects have already been recognized. High interest rates on credit cards are increasing consumer distress. Bond losses due to rising interest rates are one of the reasons for the weakening of the strength of regional banks. High mortgage rates are hitting residential and commercial real estate, and the shift to working from home is reducing office occupancy. No one knows how long it will last.

When interest rates rise this quickly, it usually ‘leads to a recession’. Ian Shepardson The chief economist at Pantheon Macroeconomics warned in a presentation to clients earlier this month. credit tightening It was also useless for SMEs due to bankruptcies of local banks. Shepardson said he wouldn’t say a formal recession is certain, but said a slowdown in growth would come.

On Wall Street, the majority still believes there will be a recession within the next 12 months. wall street journal This month’s survey reveals But in the wake of a flood of data suggesting the economy is in growth mode, many economists have lowered the odds of a recession and expect it to be mild if it does occur.

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