- The Fed will continue to raise interest rates until 2023, adding more pressure on an already slowing economy.
- Fed Chair Jerome Powell stated that the US is facing a period of low-trend growth.
- He added that the economic pain is still more important than allowing inflation to remain near four-decade highs.
The US economy can still win the fight against inflation, but workers will probably take some hefty blows along the way.
Federal Reserve On Wednesday, the interest rates were raised againThe Fed raised its benchmark rate by three quarters of a percent for the third consecutive time since June. This increases the Fed’s aggressive efforts to lower inflation and cool demand. The Fed’s latest economic projections show that rate hikes of greater than usual will continue well into 2023.
However, these projections paint a grim picture for the US economy in the future. This could indicate a “Stay Away” from the US.growth recession“The next year is coming.” Federal Open Market Committee officials predict that the economy will grow 0.2% between 2022 and 2023, which is less than the June projection of a 1.7% increase. The growth projections for 2023 and 2024 were also revised lower.
The Fed officials’ projected unemployment rate, meanwhile, was increased to 3.8% for 2022 and 4.4% for the following two years. This would result in approximately 1.3million job losses over the next 15-months, if the estimates are accurate.
Jerome Powell, Fed Chair, stated Wednesday that it is “very likely” that the US will see a period of below trend economic growth. Later, the Fed Chair Jerome Powell stated that Americans will feel economic pain as they move to slow inflation.
Seema Shah (chief global strategist at Principal Global Investors) stated that Powell’s words should be understood as central bank talk for “recession”. According to the central bank’s most recent projections, there will be years of economic weakness. Higher rates will limit the demand for workers, leading in large layoffs and smaller increases. Companies’ stock prices and growth forecasts will be affected by subpar economic growth. As interest rates rise to their highest level since 2007, mortgages, car loans and credit card debt will all increase.
“With the new rate projections, the Fed is engineering a hard landing – a soft landing is almost out of the question,” Shah said. “The times will get more difficult from here.”
An inflationary spell can be ended with a soft landing. A soft landing would allow price growth to slow down, without increasing unemployment or experiencing a significant slowdown. The ship has left port, and given that inflation is more difficult than expected to cool, a hard landing seems most likely.
The Fed’s goal is to weaken the labor market. There are still many job opportunities, but the workforce is extremely uneven. The number of workers available is currently doubled. This gap allowed Americans to leave at record rates until 2022. It was a trend that has been called the “The” Trend. Great Resignation. Higher labor rates will reduce demand and workers will lose confidence in their ability find work elsewhere.
The chair stated that there is only “modest evidence” of a labor market balancing out. He said that because inflation is still high and the labor market is tight, it will be necessary to have restrictive interest rates in place for a while.
To be sure, persistently high inflation poses a large risk to the US economy. Already, soaring prices have Wage gains for workers have been eroded despite most experiencing historically strong pay growth this year. Powell said that inflation being at or near its highest level in four decades would lead to “far more pain later.”
The Fed’s press conference this week was clear. Winning the war against inflation will not be easy. If the economy does not take the necessary steps, it will lead to a self-inducing recession.
