Saturday, June 24, 2023

Is the Fed deliberately engineering a recession?

 Fed Chair Jerome Powell struck a hawkish tone at the Semiannual Monetary Policy Report to the Congress last week, “The process of getting inflation back down to 2 percent has a long way to go”. While the Federal Open Market Committee (FOMC) decided to pause its pace of rate hikes at the latest meeting, he signaled further rate hikes in the near future. “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”
 
The word “nearly” is an understatement. The “dot plot” shows only two out of 18 dots project the Fed Funds rate to remain constant at current levels by the end of 2023. Nine project a half-point rate hike, and three project even more rate hikes by year-end. None expect rate cuts.
 
 
At the same time, Powell acknowledged during his testimony that shelter costs are lagging components of CPI and PCE. Leading indicators of shelter are falling, which is good news on inflation.

Why is the Fed ignoring leading indicators of inflation, which are falling, while focusing on lagging conventional inflation metrics, which are stable? Is it deliberately trying to engineer a recession?
 
 The full post can be found here.

No comments: