Fed admits next move could be rate hike
Wall Street is facing the once unthinkable, and there is a palpable sense of nervousness that interest rates may not have peaked yet.
of Federal Reserve Board Minutes The meeting, which ended on May Day, shows we’re not alone in thinking the Fed’s next move could be to raise interest rates. In fact, an unspecified number of Fed officials mentioned this possibility at the meeting.
“Various participants mentioned Willingness to further tighten policy “if risks to inflation materialize making such action appropriate,” the minutes said.
In the restrained and careful language of central bankers, this is nothing short of a statement. They are telling us: Inflation DragonMany were thought to have been killed, but are once again in disarray.
At its May Day meeting, the Fed chose to keep its benchmark interest rate in the range of 5.25% to 5.5%, a level it has held firm to since July of last year. But beneath the surface of this stability, Officials increasingly spooked by ‘disappointing’ inflation dataThis is because housing and labor costs have not fallen as expected and the benefits of improvements in the supply chain have run out.
Minutes overflow Hawkish sentiment These have been largely absent from previous conferences, pouring cold water on the soft landing argument.
“Several participants commented that aggregate demand growth would need to slow from the strong pace of recent quarters for inflation to move sustainably toward the Committee’s objective,” the minutes said.
This is an expression of the Fed’s belief that bringing inflation down to 2% will likely require a significant economic slowdown.
Posen points to possibility of inflationary fiscal policy in 2025
input Adam Posen of the Peterson Institute for International Economics. Some economists say consumer spending remains resilient and the labor market is tight, slowing growth, even as retailers such as Target perform weakly, point to a decline in job openings and herald an impending economic slowdown. Mr. Posen believes that it is likely that the market will continue to trend steadily.
Furthermore, he claims that Inflationary fiscal policy likely to be adopted in 2025Regardless of whether Biden or Trump is in power.
“In any case, we will probably have an unsustainable economic boom in 2025, and the Fed will have to start raising rates.” Posen said in an interview. Bloomberg TV’s “Surveillance” show Wednesday morning.
There is room to disagree with Posen about the impact of President Trump’s policies on inflation. Expanding oil productionFor example, inflation is unlikely. Any boost in demand for labor and equipment will likely be offset by lower oil and gasoline prices. But Posen may be right that the Fed may view President Trump’s policies as inflationary.
Americans think the economy will get worse
Meanwhile, on Main Street, the American people They’re not waiting for economists to tell them what they already feel deep down.. Recent Guardian Nearly three in five Americans believe the U.S. is already in a recession, a poll finds, with a majority placing the blame squarely on President Biden’s shoulders. . This sentiment has sent pro-Biden media into a real frenzy, desperate to figure out why the public isn’t buying into Biden’s optimistic portrayal of the economy.
of guardian The article explaining the opinion poll They claim Americans are wrong about the economy“A majority of Americans mistakenly believe the U.S. is in a recession, and most of them blame Biden,” heading Scream. Why aren’t Americans praising Biden’s economic achievements as they’re told?
of guardian Point out The agency that officially determines the onset of a recession has not declared a recession. They are unlikely to do so because the economy is growing and unemployment is very low.
“A recession is generally defined by a decline in economic activity as measured by gross domestic product (GDP) over two consecutive quarters, but in the United States, the National Bureau of Economic Research (NEBR) has the final say. U.S. GDP has been rising in recent years, except for a brief contraction in 2022, which NEBR did not consider a recession.” Guardian He writes:
But there is no law made by man, the market, or God that requires Americans to agree with the official definition of what a recession is. The definition of recession is simply a worsening of the economy..
If the unemployment rate is so low, why do people think the economy is getting worse? Polls show that people don’t pay much attention to employment as an economic indicator. Instead, They are focused on inflation.
There’s a good reason for that. Inflation has eaten away most of the economic growth from nominal growth and low unemployment. When accounting for inflation, disposable income has grown by just 2.9% under the Biden administration. This compares favorably with 12.4% under the Trump administration and the historical average of 8.7%. bloomberg calculations. of wall street journal Recently pointed out After adjusting for inflation, Household net worth increased by just 0.7% in the first three years of the Biden administration.In President Trump’s first three years, it was 16%.
Is it really so hard to understand why this feels like a recession to so many people?
The poll includes welcome news that Americans are unlikely to be persuaded to abandon the view that the economy is in a recession. Majorities agree that “it’s hard to celebrate positive economic news when you feel financially strained every month.” They believe The economy is worse than the media reports.
