Inflation is on the rise at nearly 10% and experts are predicting that this will lead to an economic crash within a couple of years. The Fed has raised interest rates by a quarter percentage point, and this is also predicted to increase to nearly a half of a percentage point within the next several months. The goal of the raise in interest rates is to get inflation averages back towards the 2% range, according to economists at Goldman Sachs.
Some economists have stated that as early as next month, the Fed is expected to raise rates by half a point. “If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Federal Reserve Chairman Jerome Powell said in March. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.” Meanwhile, traders are now pricing in a nearly 100% likelihood of a half-point hike at the Fed’s May meeting, according to the widely watched federal funds futures trading on the CME, and a more than 25% chance of another 50 basis point increase in June.
Powel has also recently stated that even with a hike in interest rates by the Fed, this is still not expected to trigger a recession. Yet, with higher interest rates, the housing market is expected to take a serious bust which could trigger other economic events, similar to 2008.
The stock market too, which has done poorly since President Biden came to office, could also crash, as a boomerang effect from a potential housing market crash. That’s exactly what happened when the Fed aggressively raised rates to 20% in the late 1970s and early 1980s under the late Paul Volcker to fight double-digit inflation. The consequence was a double-dip recession, then a brief downturn in 1980 followed by another pullback that lasted from mid-1981 through late 1982.
Even with a potential recession scenario, some experts think the Fed should remain more focused on inflation worries than concerns about an eventual slowdown. After all, the job market remains tight, with the unemployment rate at just 3.6%…not far from a 50-year low.
And the Fed has a so-called dual mandate: It needs to focus on both price stability and maximum employment.
People are back at the work force and the economy is recovering from a two year hiatus due to the pandemic. Even if there are negative consequences as a result of interest raises, Jerome Powell and the Fed could immediate reverse course and bring that rate down.
The question is whether or not the damage will already be done.
If the economy crashes, then it’s time for another Obama-style stimulus package where tax payer money is scattered all over the place, including money allocated for “so-called” shovel-ready” projects – which remain “shovel-ready” indefinitely until some administration official decides to actually use the money to begin the projects.
Only a man like Joe Biden is capable of implementing his former partner’s inexplicable policies.
So lets put the pedal on the medal now, and scatter the money all over the place. Let’s do it now, without delay.
Let the fun begin immediately. Why wait?
The logic behind the Fed raising interest rates shows that they are either brain-dead or acting maliciously to try and bring down the economy. The purpose of raising rates is normally to control inflation caused by too much wealth in the system. NOT when the reason for inflation is because there is short supply after government was paid people to stay home!!!
Interesting point.