Will the United States Avoid a Recession?
Despite conflicting views from various experts and analysts, signals coming from the Federal Reserve suggest that officials are optimistic of avoiding a recession. Such is their optimism, there is a feeling that they can win the war with inflation without inflicting too much pain on the economy. Even though the Federal Reserve is committed to returning inflation to 2%, it appears that officials do not want to miss the opportunity of a “Soft Landing” by raising interest rates even higher. One expert pronounced the Federal Reserve when battling inflation tends to overtighten straight into a recession, and policymakers are determined to avoid this mistake this time round.
Bearing this in mind, experts suggest the Federal Reserve will now hold interest rates at the next meeting slated for later this month on the 19th/20th September. However, the common consensus is they may well increase them one more time if the officials feel one more hike in interest rates will finally put to bed the war with inflation.
The Federal Reserve, and indeed their Chairman Jerome Powell, have been on the wrong end of criticism suggesting that they, (along with the Bank of England) acted too late to fight rising prices. If indeed the Federal Reserve can restore price stability after an electrifying increase in inflation, without the economy going into recession, this would be a standout and even rare achievement in modern day policy decisions.
The FOMC (Federal Open Market Committee), has raised interest rates eleven times since March 2022, and currently sit at their highest level of 5.5%, which is their highest level since 2021. Chairman Powell has been at pains to emphasise that the aggressive interest rate hikes are reaching the end of their cycle, and that economic data will decide whether or not there will be any more rate hikes.Despite the signals coming out of the Federal Reserve there are some experts who expect the hawks to keep a bias to keeping interest rates high as some of those who make policy have been let down by false dawns due to disinflation and are therefore mindful of confirming an end to interest rate hikes and quantitative tightening. Officials at the Federal reserve will see one more key data on inflation before their next meeting. Experts suggest that the FOMC will pass on a rate hike this month but are suggesting it is 50/50 as to whether or not interest rates are raised by a ¼ of 1% at the next meeting on October 31st – November 1st.