If there needs to be a US recession to bring inflation down to appropriate levels, the Fed would be fine with that, says a Wall Street professional.
“Unfortunately yes [the Fed would be OK with a recession]. I’m going to say yes,” senior economist at BMO Jennifer Lee said on Yahoo Finance Live. “And the Fed has softened their tone a little bit in the last couple of months. They used to say they could probably do this and get a smooth tightening.” [economic] landing. But now they have already said that there will be pain felt. And it’s unfortunate, but this is what happens when a central bank is tightening aggressively.”
Lee added that he is looking for a “mild recession” in the US.
The Fed’s aggressive stance has spread to many areas this year.
The US dollar has soared against its counterparts abroad, hitting quarterly sales of major multinationals like Nike and FedEx. Mortgage rates have risen to almost 7%, stunting demand for homes. Economic growth, 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 Nasdaq Composite (^IXIC) remain mired in double-digit percentage declines during the year.
The tone in the markets may not improve much towards the end of the year as companies use the upcoming earnings season to warn of future economic growth and stubbornly high costs.
“The dollar is very strong and interest rates are going up very fast,” said author and Harvard University economics professor Ken Rogoff. warned on Yahoo Finance Live. “So I think the idea that it’s going to be a really mild recession, if it is, would be a lucky one. I’d say it’s going to be a tough trade-off for the Fed once the numbers start to settle.”
brian sozzi is a general editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.
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