Inflation data will determine whether the Fed triggers an economic recession in 2023 if it remains aggressive: Know why

You are currently viewing Inflation data will determine whether the Fed triggers an economic recession in 2023 if it remains aggressive: Know why
Businessmen sell falling stocks in order to minimize the impact on the stock portfolio, affecting the success of the company's business.

The Consumer Price Index (CPI) data for October is released on Thursday. It will hold key implications for how aggressive the Federal Reserve is with interest rates moving forward. One economist said he’s expecting inflation to ease slightly, which could lead the Fed to a 50 basis-point rate hike in December. Inflation has been one of the main drivers of monetary policy decisions by the Fed in recent years, so any change in CPI readings can have significant impacts on future rate hikes. The most closely watched number in Thursday’s report will be the “core” CPI.

Market recession

Excessive production of products and services that aren’t used can cause a market recession. When demand peaks and begins to decline. In this situation, businesses cut back on production and lay off workers as consumers’ purchasing power declines and consumption declines more.

Fed recession

The US is currently facing a 55% probability of a recession, which is largely due to the Federal Reserve’s aggressive interest rate hikes. This in other words known as Fed recession. On Thursday’s October CPI data could alter that outlook, according to chief economist Jonathan Wright. Wright said that while the Fed has been widely expected to raise rates again in December. Thursday’s inflation report could give them pause. If inflationary pressures are not as strong as feared, then the Fed may decide to hold off on another rate hike. However, if inflation remains stubbornly high despite weaker economic growth prospects, then the central bank may be forced to stave off a recession.

Economist data

A lot of people are expecting inflation to pick up this year, but we think it will actually ease off a bit,” Tilley said. “It’s still going to be above 2%, which is higher than the Fed’s target, but not as high as some people are expecting.”

Inflation in the U.S. is expected to have cooled in October, as rising prices for gasoline and other energy items eased and food costs continued to fall. The median estimate from a Bloomberg survey of economists called for a 0.6% increase in the consumer price index last month, following an 8.2% gain in September that was driven by Hurricane Harvey-related disruptions. Excluding volatile food and fuel categories, so-called core inflation was seen advancing 0.3%.

For Core CPI year-over-year, which is the more closely watched figure, economists are looking for a 0.5 % increase.

This is what it’s really going to come down to: the Core reading. Excluding food and energy, Tilley said that last month was 0.6% and tomorrow’s expected reading is 0.5%. Anything below that will play a role in reducing the Fed’s hike at the next meeting. So if the reading comes in below 0.5%, that would encourage a 50-basis-point hike in December; anything above that would push toward a 75-basis-point move.

Causes of recession

While Wall Street remains mixed on whether policymakers will opt for a fifth consecutive 0.75 point move, traders are currently betting on greater odds of a half-point hike. This is due to the fact that inflationary pressures have begun to subside and economic growth has started to moderate. As such, many believe that the Fed will soon start to wind down its stimulus measures.

The Fed has been on a mission to normalize interest rates after years of emergency measures following the financial crisis. That process began in 1980, but gained fresh urgency this year as inflation surged past the 2 percent target that policymakers see as healthy. Now, with another rate hike likely coming at the end of this month and more increases penciled in for next year, some economists are warning that the Fed could overshoot its targets and inadvertently trigger a recession. “What we’re seeing now is reminiscent of what happened in previous tightening cycles,” said Mark Zandi, chief.

How to prevent recession?

As of now, Tilley noted his firm expects a recession next year which is to be more than likely for 2023. Although Thursday data could alter that prediction, the current outlook is not optimistic. The probability of a recession in the next year has increased to 55%. This is due to the expectation that the Federal Reserve will raise interest rates more than anticipated.

The analysts said that a sharp and unexpected drop in inflation could lead to a “flattening” of the yield curve, which would be good news for stocks. A flatter yield curve indicates that long-term interest rates are falling relative to short-term rates, which is often seen as a sign of economic weakness.

Inflation has been a key focus for investors as the Fed looks to raise interest rates this year. A drop in inflation would be a blow to the Fed’s plans, and could lead to a delay in rate hikes. Goldman’s analysts are now forecasting that the 10-year yield will fall to 3.75% by the end of 2019, down from a prior forecast of 4%. The Consumer Price Index (CPI) fell 0.2% last month, while economists had expected it to rise 0.1%.

The global recession has had a significant impact on India’s economy

The global recession has had a significant impact on India’s economy. In recent years, India’s economy has been greatly impacted by the global recession. This has caused a number of problems for the country, including a decrease in exports, an increase in unemployment, and a decrease in investment.

The United States’ percentage of India’s exports of goods climbed from 10.1 percent in FY2011 to 18.1 percent in FY2022. The increase in the US market share in India’s exports has undoubtedly made India more susceptible to an economic downturn in the US. FPI capital flows, currency reserves, and the rupee have already begun to be impacted by Fed rate increases. The FPI exodus from Indian equities might still be ongoing. For the seventh week in a row, India’s foreign exchange reserves decreased.

 

 

Leave a Reply