Recent economic news has been good at raising optimism about a soft landing and speculation about where interest rates will ultimately settle.
Now, can Federal Reserve Chairman Powell artfully maneuver interest rates to take inflation to 2% without derailing the economy?
To finance federal incentives and more health care spending, the federal deficit for the fiscal year ending in September will likely hit $1.85 trillion or about 6.9% of GDP. The consensus of economic forecasters compiled by Bloomberg indicates no recession but rather slower growth in this year’s 4th quarter and 1st quarter of 2024. Forecasters anticipate the Fed will start lowering interest rates in March.
Although the structural constraints on supply that COVID-19 imposed—in particular, the shutdown of the Chinese economy—have passed, other unforeseen problems have emerged. In a nutshell, the era of cheap hands in Asia to assemble everything from chairs to cell phones is coming to an end and an important source of low inflation during the pre-COVID era recedes with it.
And Mr. Greenspan did not have a war raging in Europe disrupting global petroleum and natural gas supplies, rising global temperatures running hazard through food supplies and electrical grids, and federal deficits so large that Finch has downgraded the creditworthiness of the U.S. government.Similarly, many economists advocate moving the goalposts by raising the target inflation rate to 3% or higher.
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