Federal Reserve Chair Jerome Powell told the Senate Banking Committee the U.S. central bank is “strongly committed” to bringing down inflation but not trying to “provoke” a recession. But he acknowledged that a recession was “certainly a possibility” given the global situation, including supply-chain issues and the war in Ukraine. Powell said policymakers would need to be nimble to rein in inflation without doing serious economic damage.
Pro Farmer Economic Consultant Dr. Vince Malanga, president of LaSalle Economics, says “The Fed waited too long to begin tightening and now the question is whether it is doing too much... By the time summer ends it will be clear that the economy is immersed in some sort of recession. A mismatch between inventories and sales is on the verge of reverberating through the production process. It is showing up in price markdowns and it is not a brief adjustment. Having misjudged consumer demand so badly, we suspect retailers will be very cautious planners for the back to school and Christmas selling seasons.”
He adds, “Housing is already feeling the ill effects of recent interest rate hikes and we suspect it will worsen. Because mortgage rates are now at the highest in over five years, housing turnover will slow; inventory will rise; and home prices will weaken which will adversely affect perceptions of household wealth. In past business cycle downturns, the Fed was quick to support markets with lower interest rates. As rates fell it triggered booms in mortgage refinance which supplemented household spending power. Not so this time as the Fed is tightening into economic weakness... By autumn we fear the Fed will be faced with the difficult choice of accepting somewhat higher-than-targeted inflation or crunching the economy.”