A recession is “when your neighbor loses his job, ” President Harry Truman famously said. “It’s a depression once you lose yours. ”
To some politicians, a recession is a political football. When recession talk is in the air, the most important thing to thOse politicians is not the way the national economy will fare. It’s if they – or their opponents – would be the ones to lose their jobs.
Recession talk is in the air nowadays and politicians are kicking the soccer. Congressional Republicans are blaming the Democrats for the recession. The particular Democrats are reacting: “What recession? ”
Each party has a point. By the traditional back-of-the-envelope definition – two successive quarters of negative gross domestic product – we’re in a recession. Benefit: Republicans.
But this doesn’t feel like a recession. The economy keeps generating hundreds of thousands of new careers every month and the unemployment rate is only 3. 7%. The nonprofit organization that phone calls recessions, the National Bureau of Economic Research, hasn’t known as this one. Advantage: Democrats.
For its part, the public seems far more concerned with inflation compared to recession. So will the Federal Hold Board. As I published in June , “The Federal Arrange has decided to throw everything it has directly into fighting inflation, even at the risk of causing a recession. ”
For two months come early july, the stock market acted as if the Fed would be easily sidetracked from its campaign to wring inflation out from the economy. Stocks increased into bull-market area as investors noticed signs inflation might soon slow and reasoned the Fed would “pivot” away from the campaign.
Investors, the New York Instances described “were forecasting the Fed not only will minimize raising rates next year but will need to cut them somewhat. ”
I love a stock-market move as much as the next trader, but I always believed this one was depending on wishful thinking. I wasn’t as amazed as some investors evidently were by the hawkish speech Fed seat Jerome Powell offered recently in Jackson Hole, Wyoming. You can see their surprise in the steep declines within stock prices Powell’s speech touched away from.
Within the speech , Powell said the Fed’s “overarching focus” has been on bringing inflation down to 2%, which he said would “require maintaining the restrictive policy position for some time” and “using our tools forcefully. ”
His only tip of moderation was that “at some stage, as the stance associated with monetary policy reduces further, it likely can be appropriate to slower the pace associated with [interest-rate] increases. ”
And while Powell avoided the word “recession, ” he came close up: “Reducing inflation is likely to require a sustained amount of below-trend growth, ” he said.
“Moreover, there will most likely be some softening of labor marketplace conditions, ” this individual added. “While higher interest rates, slower development, and softer labour market conditions will bring down inflation, they are going to also bring several pain to households and businesses. These are the unfortunate costs of reducing pumpiing. But a failure to restore price stability would mean far greater pain. ”
Fed officials meet again on September 20-21 and, after 0. 75% rate improves at the last two meetings, Powell has warned that “another unusually large enhance could be appropriate on our next meeting. ” Some economists think another increase is more likely to be 0. 5%, still a big proceed by historical specifications.
The size of the next increase will depend on the Fed’s assessment from the economic data. The most recent employment report demonstrated that the economy generated 315, 000 new jobs in August, down from 526, 000 in This summer, and the unemployment price rose to several. 7% from 3 or more. 5%. Wage growth slowed. If the September 13 consumer price report indicates a slowdown in price increases as well, those economists could be right.
It’s not the next meeting’s increase that’s of concern to farmers, ranchers and other business borrowers, however. The scenario that worries them is that inflation continues to be stubborn and Jay Powell is required to raise rates into the stratosphere, as Given chair Paul Volcker did in the early 1980s. This would be the “far greater pain” Powell alluded to.
Volcker imposed 20% interest rates because the inflation rate acquired neared 15%. Today’s consumer-price inflation is only 8. 5% and might be headed down.
Volcker has been forced to adopt extreme measures because the Given hadn’t been vibrant enough early on. Hence, to avoid a rerun of the 1980s, the particular Fed may well feel it has to continue along with “unusually large price increases” for the near future.
Whether or not it can do so with no causing a recession, and not just a slowdown in growth, could be the question only time can answer.
Former in long run Wall Street Journal Asia reporter and editor City Lehner is publisher emeritus of DTN/The Progressive Farmer. Follow him upon Twitter @urbanize. This article, originally published on September 6 by DTN and now republished by Asia Times with permission, is © Copyright 2022 DTN, LLC. All rights reserved.