Unemployment has moved below 4% for several of the most recently reported months. That runs close to the multidecade lows set just before the COVID-19 pandemic. Perhaps recessions have developed under such circumstances. However, finding them is difficult. A recession brought on by inflation can surely be stopped by full employment.
More and more economists have raised their odds that gross domestic product may shrink in upcoming quarters. Deutsche Bank experts actually said a recession has become likely: “We no longer see the [Federal Reserve] achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession.”
The recession forecasts assume that monetary policy has become useless. Rate increases have no ability to cut off inflation, which could soon reach 10% year over year, based on the consumer price index. One has to imagine that the monetary policy that has served the economy since the Great Recession has lost its teeth.
Inflation should have been expected, according to economists led by former Treasury Secretary Larry Summers. The policies that pulled the United States out of the COVID-19 downturn may have helped the jobs markets, but they overheated consumer demand as well. The government has done its job too well.
If any culprit can be called the largest, oil takes that position. Did it need to? Certainly, geopolitical circumstances have not helped. However, the U.S. government might have prepared for shortages a year ago when it became apparent that oil price increases had begun to affect consumer costs.
24/7 Wall St.The jobs cycle may be on the cusp of another run-up. If another recession starts, one should expect unemployment to race above 5% again. If the price increases accelerate or last into next year, that figure could move higher. Traditional views of the economy say that inflation cools as more people find themselves out of work. Then, perhaps, the Fed could act to drop interest rates again. That this might happen seemed wildly unexpected just a few months ago.
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