My NASDAQ Article: Are We Headed to a Self-Inflicted Recession?

Please see my article on NASDAQ

We teach our children one simple trick in life: pause, listen, and then act. Yet, when it comes to the United States economy, policymakers are failing to do just that. They are not even pretending to pause, as their blinded obsession with inflation numbers is pushing the Fed into a zone of tunnel vision on interest rate policy. New information on?US Inflation continues to show high prices, which shows the Federal Reserve’s interest rate hikes are totally missing the mark. Unless this trickle of hikes is stopped and reviewed, it will be the self-inflicted push that that will drive the US into a recession.

I strongly believe that unless we get our act straight, the US is running fast towards a recession. However, this can be avoided or, at the very least, pushed into a direction of a softer landing. Even United Nations agencies, who generally stay out of subjective economic matters, is warning that if we are not prudent with our monetary policy, we could be inducing not just a recession in the US but may catalyze a global one. This will particularly impact economies in Asia, which will only slowdown the subsequent recovery.

The US has seen a series of “slow trickle” rate hikes this year, with recent announcements hinting that we could see three more interest rate hikes leading up to Q1 2023. The issue may not be increasing interest rates, but instead the “delayed slow trickle” method, which could be causing the effectiveness of the “increase interest rates” instrument to become partially ineffective in its attempt to control inflation.

There are two aspects of this mistake. The first is the not stepping on the breaks before 2022. The second is then trying to swiftly overcorrect. This sudden over reaction has led to excessive monetary tightening and will create short-term stagnation and economic instability. If a driven and prudent approach is not taken, it will be even more difficult to bring down prices by increasing interest rates without inadvertently pushing the country into recession. Furthermore, the recent CPI (Consumer Price Index) data reveled that these conditions are much worse than expected. Looking at history and how the Fed has reacted, there is a strong chance that aggressive interest rate hikes will continue. Some of the minutes from the most recent Fed meeting indicate that there seems to be a growing sentiment that not enough is being done to combat rising prices. It almost feels like Jerome Powell, Chair of the Federal Reserve of the United States, is okay with igniting a recession to control inflation. Rate hikes have already significantly affected the mortgage market, with 30-year mortgage residential rates currently exceptionally high at a whomping 6.81%, as the increase in rents fuels the inflation fire. The Organization of the Petroleum Exporting Countries (OPEC) is also preparing for troubled times. With its recent decision to cut production, this will almost definitely hurt Americans at the pump.

Other actions can be taken to address the problem of increasing inflation. The Fed should slow down and wait for the previous interest rate hikes to find their ground. There is a tremendous opportunity to stop, pause, and listen to what the data reveals before making any more adjustments. Policymakers must seriously look at and act on other options to control inflation through smart tax policy on corporations and better mitigating controls on commodity speculation. Corporate pricing, energy costs, and supply chain disruptions are causing inflation and these issues need to be taken more seriously. If these actions are taken, the US can save itself, and possibly the larger financial markets from a looming recession.