Is the Fed engineering a recession?
The US Federal Reserve made a bold statement in June by hiking rates by 0.75%, the biggest rise in almost 30 years. It is widely expected that July’s rate hike will also be for 0.75%, showing just how committed the Fed is to get inflation under control. However, with commodity prices moderating of late and some key inflation data turning down as well, there are signs inflation may have peaked. So why keep up the high rates in a slowing economy which is likely to lead to a recession? It seems the Fed has decided to sacrifice the economy to make sure that it reduces inflation once and for all. It sees runaway inflation as a greater threat than a recession and believes the economy has what it takes to stage a quick rebound. It will be interesting to see the state of inflation and the economy when the Fed meets to decide on interest rates in September.