The Federal Reserve’s attempts to combat inflation and keep it within its target of 2%–3% has led to seven successive rate increases in the past year.[0] While effective, these hikes have prompted fears amongst economists of a potential recession, as the Fed risks pushing the economy too far, leading to job losses.
Retail sales rose 3% in January, according to the Commerce Department, and the unemployment rate is at its lowest since May 1969.[1] Yet the decline in the Philly Fed index and the poor momentum in the US housing market have sparked recession fears amongst investors.[2] The higher-than-expected Producers Price Index, Wednesday’s retail sales, and the fall in today’s initial jobless claims suggest that the fight against high inflation is still ongoing.[2]
The 10-Year US Treasury yields are climbing, putting further pressure on longer-duration assets, while oil prices are trading lower due to Fed hike fears.[2] Gold investors are hanging on to those recession signals, but with rate signals blowing in the wind, it seems the appetite to add to current positions is small.[3]
In an ideal scenario, inflation keeps trending downward without increasing unemployment.[4] Prices stabilize and we avoid a recession.[4] Lower inflation expectations can reverse the dynamic and help cool inflation.[5]
It is clear that the Federal Reserve must act cautiously to ensure the economy does not slip into recession. The Fed must continue to raise rates, but at a steady rate, to ensure inflation is kept within target.[0] We must watch the situation closely to ensure the Fed does not push the economy too far.
0. “Question of the month: How do you maneuver uncertainty in today’s economy? – by Alan Doyle” New England Real Estate Journal Online, 10 Feb. 2023, https://nerej.com/question-of-the-month-how-do-you-maneuver-uncertainty-in-today-s-economy-by-alan-doyle
1. “Deep Recession or Soft Landing? Where Is the U.S. Economy?” NBC 5 Dallas-Fort Worth, 16 Feb. 2023, https://www.nbcdfw.com/news/business/deep-recession-or-soft-landing-where-is-the-u-s-economy/3195330/
2. “In a recession’s shadow” FXStreet, 16 Feb. 2023, https://www.fxstreet.com/analysis/in-a-recessions-shadow-202302162357
3. “U.S. Stocks Lower on Macro-Heavy Day Amid Recession Fears” Investing.com, 17 Feb. 2023, https://www.investing.com/analysis/us-stocks-lower-on-macroheavy-day-amid-recession-fears-200635416
4. “Is the economy improving? Here’s an explainer, and what to know about debt, jobs, inflation and recession fears.” msnNOW, 13 Feb. 2023, https://www.msn.com/en-us/money/markets/is-the-economy-improving-heres-an-explainer-and-what-to-know-about-debt-jobs-inflation-and-recession-fears/ar-AA17q4ZH
5. “Cautious but steady consumers buoying hopes for U.S. economy” Toledo Blade, 16 Feb. 2023, https://www.toledoblade.com/business/retail/2023/02/16/cautious-but-steady-consumers-buoying-hopes-for-us-economy-1/stories/20230216118