I'm an economist who has been arguing against doom-and-gloom predictions for years. Here's why I now think the US economy is hurtling towards a recession.
? The Fed could be counted on to step in and provide the support. But today that calculus has shifted. It's clear that the Fed chair Jerome Powell and other Fed officials believe that slowing down red-hot prices and lowering expectations for continued price growth is their most important task. They've launched an aggressive campaign of interest-rate hikes to get this problem under control and seem committed to the task — even if that means pushing the economy into a recession.
Assume the Fed can walk through two doors. Behind Door No. 1, the Fed raises interest rates enough to bring inflation down, but pushes the economy into recession in the process. Behind Door No. 2, the Fed fails to tighten enough and, as a result, inflation expectations increase. When faced with these two choices, the Fed is saying quite clearly that they'll walk through door No. 1.
In light of these issues, it's clear the Fed's outlook for the economy over the course of the year is too rosy. In the latest Summary of Economic Projections, the Fed's estimate for 2022 GDP growth is 1.7%. But GDP growth for the first quarter was negative 1.6%, and the Atlanta Fed's GDPNow estimate — which provides a real-time estimate of this quarter's GDP growth — is sitting at negative 2.1% for the second quarter.
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