WASHINGTON, November 6, 2022 (Xinhua) The specter of a recession looms in the United States as the Federal Reserve continues its campaign to raise interest rates.
On Wednesday, the US Federal Reserve raised interest rates by three-quarters of a point for the fourth consecutive time amid the worst inflation in 40 years.
Although job opportunities are available and unemployment is low, economists predict the possibility of a recession next year, especially if the Federal Reserve continues to raise interest rates at such an aggressive pace.
A report on excess jobs released on Friday highlighted the problem. Desmond Lachman, a researcher at the American Enterprise Institute, told Xinhua that the numbers of strong employment growth “raise the chances that the United States will experience a severe economic downturn in the form of a bad recession next year.”
This is because as employment growth increases, the Federal Reserve needs to raise interest rates in an effort to slow inflation and, moreover, the economy as a whole.
Lachman said the Fed will continue to do so even as cracks appear in the US and the global financial system, and even when the US housing market appears to have already entered a recession.
“To reduce inflation, the Fed will somehow have to raise wages at a slower pace than they are now, which probably means the US will have to go into recession,” Lachman said.
To be sure, rising interest rates would negatively impact consumer wallets in one way or another, such as making debt payments more expensive or getting a mortgage for Americans.
But despite numerous rate hikes, inflation continues to rise, suggesting there is still a long way to go before prices stabilize and the US sees 2% inflation considered acceptable.
Indeed, the current inflation rate continues to rise above this benchmark.
The widely followed consumer price index showed that inflation in September fell slightly to 8.2% yoy, but increased 0.4% yoy.
Meanwhile, lawmakers are increasingly demanding that the Federal Reserve halt interest rate hikes as critics fear they could lead to a recession. Critics point out that while prices are high, at least there are jobs. Economists are wondering what will happen in a scenario where there are far fewer jobs and prices have not yet fallen to acceptable levels? This is a recipe for ‘stagflation’, or a stagnant economy with high inflation.
The Federal Reserve gave no indication that it would change course.
Inflation and fears of a recession have hit the US stock market hard in recent months, with the Dow Jones Industrial Average down more than 4,000 points year to date. Investors continue to stay away from the stock market. Although there have been moments of recovery, the markets remain volatile.
