Bob Doll, CIO of Crossmark Global Investments, argues that a key reason is that some of the “supply constraint problems” are beginning to be resolved, noting that even if inflation starts to fall, it’s still at “unacceptable levels ” will be.
The US economic outlook is clouding so fast that a recession could be on the horizon as the Federal Reserve makes an aggressive move to tame the hottest inflation in four decades, according to Bank of America economists.
In an analyst note to clients, BofA chief investment strategist Michael Hartnett warned that rising consumer prices combined with an increasingly hawkish central bank could trigger an economic downturn in the US
The Fed is raising interest rates for the first time in 3 years and projects 6 more hikes as inflation picks up
“The ‘inflation shock’ is getting worse, the ‘interest rate shock’ is just beginning, the ‘recession shock’ is coming,” Hartnett wrote.
The analysis comes as the Fed takes a more hawkish approach to fighting inflation, which is at its highest since 1982. Policymakers hiked rates by a quarter of a point in March and have since signaled support for a faster half-point hike at their May meeting.
Bank of America corporate logo on February 26, 2016, in New York, United States of America. (Thomas Trutschel/Photothek via Getty Images/Getty Images)
Traders are now pricing in a more than 80% chance of a sharp half-point hike in interest rates when policymakers meet next month
“If we decide it’s appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at one or more meetings, we will do so,” said Federal Reserve Chair Jerome Powell , recently. “And if we find that we need to move beyond the usual measures of neutrality to a more restrictive stance, we will do so.”
Some economists believe the Fed has waited too long to stem the surge in inflation, while others have expressed concerns that acting too quickly to stabilize prices could trigger the risk of an economic recession. Rising interest rates tend to result in higher interest rates on consumer and business loans, which slows the economy by forcing employers to cut spending.
Still, Powell has quashed concerns that further central bank tightening will trigger a recession and has maintained optimism that the Fed can strike a delicate balance between taming inflation without weakening the economy.
Customers browse food vendors at Grand Central Market on March 11, 2022 in downtown Los Angeles, California. ((Photo by Patrick T. FALLON / AFP) / Getty Images)
“The likelihood of a recession next year isn’t particularly high,” Powell told reporters at the Fed’s March meeting, citing the strong labor market, solid payroll growth and strong corporate and household balance sheets. “All signs point to this being a strong economy that can thrive in the face of less accommodative monetary policy.”
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The Labor Department reported last month that the consumer price index rose 7.9% year-on-year in February, the fastest rise since January 1982, when inflation hit 8.4%. The CPI, which measures a variety of commodities ranging from gasoline to healthcare, rose 0.8% from January.
The latest consumer price index, to be released Tuesday morning, is expected to be another sucker. Economists expect the gauge to surge over 8% and set a new 40-year high.