One Wall Street expert says that if a U.S. recession is needed to bring inflation down to appropriate levels, the Fed would be cool with it.
“Unfortunately, yes [the Fed would be OK with a recession]. I’ll say yes,” said BMO’s chief economist Jennifer Lee said on Yahoo Finance Live. “And the Fed has softened its tone a little bit in the last two months. They were saying they could probably do that and get a soft outcome. [economic] landing But now they said that the pain will be felt. It’s unfortunate, but that’s what happens when the central bank tightens aggressively.”
Lee added that he was looking for a “soft recession” in the US
The Fed’s hawkish stance has spread to many areas this year.
The U.S. dollar rose against its overseas counterparts, boosting quarterly sales at major multinationals such as Nike and FedEx. Mortgage rates have risen to around 7%, slowing demand for homes. Economic growth – as measured by Gross Domestic Product (GDP) – slowed in the first half of the year.
Meanwhile, the Dow Jones Industrial Average (^ DJI), the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) remains mired in double-digit percentage declines for the year.
The tone in the markets may not improve until the end of the year as companies use the upcoming earnings season to warn of future economic growth and stubbornly high costs.
Harvard University economics professor and author Ken Rogoff: “The dollar is too strong and interest rates are rising too fast.” warned on Yahoo Finance Live. “So I think the idea that it’s going to be a really mild recession, if that’s the case, would be lucky. I’d say it’s going to be a tough trade-off for the Fed once the numbers start to settle in.”
Brian Sozzi is a senior editor and Host at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and continues LinkedIn.
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