As expected, the Federal Reserve held rates steady at the September 19-20 policy meeting, following 11 hikes over the last 18 months that lifted short-term rates from near zero to a range of 5.25-5.50 percent.
The Economic Engine is Running Out of Fuel
Economists are sounding ever-more like Gilda Radner of Saturday Night Live fame, claiming “never mind” about their recession call of a few months ago.
Will This Time Be Different?
Contrary to revised expectations – and robust economic data – the business cycle has not been repealed. Yes, a recession is coming, but it is taking an awfully long time to arrive. When it does, its shape may look different, more like a mini recession than an outright downturn.
A Pause Does Not Mean Stop. As the curtain rises on the second half of the year, the economy’s growth engine is still running on most cylinders.
Economists are often called dismal scientists, as they are more likely to see the proverbial glass as half-empty than half full. That label is vividly on display now, as the forecast of a recession within the economic community is more pronounced than ever.
While the banking panic that rocked the financial markets in March has been defused, its aftereffects are rippling through the economy. We will have a better sense of how much credit conditions have tightened on May 8 when the Federal Reserve releases its Senior Loan Officer Opinion Survey.
Banking Stress Adds Risk to The Outlook
It is a time-honored adage that monetary policy affects the economy with long and variable lags. Well, that time is up, if the tumult caused by the failure of a few regional banks is any indication.
Renewed economic vigor is upending expectations. Last year ended with a thud, with consumers retrenching, inflation receding, and financial markets slumping.
Slowing Inflation Offers Hope for 2023 Printable PDFMurphy’s Law played out in dramatic fashion last year, as virtually anything that could go wrong seemingly did.
It was a rough 2022, but the U.S. economy survived the myriad headwinds thrown at it, including raging inflation, geopolitical stress, skyrocketing interest rates, declining stock prices, a recurring COVID-19 wave, and the most aggressive pivot towards monetary tightening in more than forty years.
Has the inflation worm turned? It’s still early, but the signs are encouraging as an expanding list of price measures are pointing to slower increases. Whether this favorable trend continues is an open question; many factors underpinned the astonishing inflation cycle of the past two years and many don’t fit into conventional economic models that make predictions a bit easier.
Alarms warning of a recession ring louder with each rate hike by the Federal Reserve. So far this year, there’s been plenty – five since March and still counting.
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