Economists warn of severe recession as Fed continues to raise interest rates to fight inflation

A growing number of economists have warned of a severe recession in the United States if the Federal Reserve continues to fight inflation. “Every adverse development in the outside world means that the Fed is going to have to do more in order to get things under control“, said one economist.

Economists warn of deep recession from Fed’s response to inflation

A growing number of economists have warned that the Federal Reserve’s fight against inflation, which remains at the highest level in decades, could lead to a deep recession in the United States. At the next Federal Open Market Committee (FOMC) meeting on Wednesday, the U.S. central bank is expected to raise interest rates by another 75 basis points – the fourth 0.75 percentage point increase in a row. However, several economists warned that policymakers’ response to inflation could lead to a more severe slowdown in the U.S. economy, the Financial Times reported Tuesday.

“Every negative effect [inflation] Every adverse report and every adverse development in the outside world means that the Fed is going to have to do more to get things under control” said David Wilcox, senior fellow at the Peterson Institute for International Economics. He added:

Doing more means a greater likelihood of recession, and if the Fed doesn’t do more, it can’t do more. [it] occurs, in all probability, a deeper recession.

Franklin Templeton Fixed Income Group CIO Sonal Desai believes, “The reality is that we’re going to need some slowdown in the economy to take some of that pressure off the demand side.“

ING’s chief international economist, James Knightley, warned, “By acting fast and hard, you naturally have less control“. He elaborated:

The higher the terminal rate, the larger the window for all borrowing costs to continue to rise, [ce qui] suggests the increasing risk of a fairly severe downturn.

Priya Misra, global head of rates strategy at TD Securities, noted, “If you look at the U.S. data, it’s very hard to argue with the need for a slowdown. But once you look at the global picture, the situation in the U.K. should give them the caution to slow down without pivoting.“

TS Lombard’s chief economist for the United States, Steve Blitz, explained:

What’s at stake if they make the wrong decision is that inflation stays higher, which means that at some point they’ll have to do even more to get inflation down to 2%.

Fed Chairman Jerome Powell did not rule out the possibility of a recession after the last FOMC meeting in September. “No one knows if this process will lead to a recession or if so, how deep that recession would be” he told the press. Jerome Powell is also facing political pressure regarding the Fed’s interest rate hike decisions.

Last week, a survey of 257 economists showed that most of them think a global recession is near. Another survey showed that 98% of business leaders are preparing for a recession in the United States. Recently, Robert Kiyosaki, author of Rich Dad Poor Dad, pointed out that continued Fed rate hikes would destroy the U.S. economy, leading to stock market crashes. Economist Peter Schiff has also warned that the Fed’s interest rate hikes could lead to stock market crashes, a massive financial crisis and a severe recession.