For The Fed, 2022 May Be 1979 All Over Again
Summary
With inflation running at a 40-year high of 9.1%, there are predictions that Federal Reserve Chairman Jerome Powell will prescribe the same bitter medicine a long-ago predecessor, Paul Volcker, did by taking the country into a recession. In August 1979, inflation was above 11%, unemployment was just under 6%, and Americans were lined up around the block waiting to fill their cars at gas stations due to fuel shortages. While the economists surveyed by National Mortgage Professional don’t expect the FOMC to raise the federal funds rate by 100 basis points this week, they say an increase of such magnitude would be tantamount to a red alert. “Nothing is 100% guaranteed but it (the inverted yield curve) is one of those indicators that, if prolonged, it’s a pretty clear sign of what’s going to happen,” said BMO Capital Markets’ Lee, who added that she expects a “growth recession,” defined as an economy that’s growing slowly but also experiencing a rise in unemployment. “It’s always difficult for the Fed to know how hard to apply the brakes and, in this current case, it’s even much less certain given all the confounding factors such as the leftover (COVID-19) stimulus money, consumer confidence, and expected inflation.
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