US recession a growing fear as Fed plans to keep rates high
2 years ago

US recession a growing fear as Fed plans to keep rates high

Associated Press  

WASHINGTON — After scaling 40-year highs, inflation in the United States has been slowly easing since summer. We’re going to break inflation or we’re going to break the economy.’’ Many investors had convinced themselves that with inflation pressures gradually easing, the Fed might soon declare some progress in their fight and perhaps even reverse course and cut rates sometime in 2023. “It’s good to see progress but let’s just understand we have a long ways to go to get back to price stability.’’ Powell seemed to bat down hopes that the Fed might end up cutting rates by late next year — a move that typically acts like steroids for markets and the economy — unless inflation had dropped significantly by then, which he does not appear to expect. Even the goods news out Thursday — a drop in the number of Americans seeking unemployment benefits — had a downside: It reinforced the Fed’s concern that a strong and resilient job market is putting upward pressure on wages and overall inflation. Sweet of Oxford Economics said he suspects that “the Fed is overstating how strong inflation might be.’’ But he said he sympathized with its predicament: Powell and the other policymakers fear that a failure to curb high inflation — even if it means a recession next year — would lead to a central bank’s nightmare scenario: “stagflation.” That’s a worst-of-all-worlds combination of weak growth, high unemployment and persistent inflation.

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