To make matters worse, the emergency pandemic assistance that contributed to the current wave of inflation by amplifying the purchasing power of consumers is disappearing like a receding tide. Rosenberg calculates that the fiscal stimulus approved by Congress added five percentage points to the economic growth rate a year ago, but the subsequent pandemic aid deadline will reduce the economy’s growth rate by nearly three percentage points by the end of. this year.
To be sure, Rosenberg is more bearish than most economists and policy makers. On Wednesday, the Fed released a survey of Fed governors and reserve bank presidents showing median projections for economic growth of 2.8% this year and 2.2% in 2023. “We believe the economy is very strong and well positioned to withstand tighter monetary policy, ”Powell said at a news conference Wednesday.
Capital Economics told clients Wednesday, ahead of the Fed’s announcement, that it puts the risk of a recession in the next 12 months at just 2%. I spoke to several other experts prior to the announcement that they were even more optimistic than Rosenberg. Kathy Bostjancic, US chief economist at Oxford Economics, wrote to me in an email that a Fed-induced recession “is a low but rising risk for 2023”. For now, she wrote, “strong momentum, a very healthy job market and a healthy consumer budget should keep growth buzzing this year.”
James Hamilton, an economist at the University of California, San Diego, told me that the federal funds rate is too low, especially given economic bottlenecks holding back supply, and as higher rates hold back growth, “based on what has happened so far I don’t think it’s enough to cause a recession.” Guy LeBas, chief fixed income strategist for Janney Montgomery Scott in Philadelphia, took a similar line, stating that the recessive factors “come burdened by strong growth in jobs and short-term wages “.
Barry Ritholtz, an investor and blogger, wrote on Monday that Fed officials understand the danger of raising rates too quickly. “The Fed wants to get out of its emergency run,” he wrote. “They are in awe of inflation, but they understand exactly how ineffective the increases are in the current environment.” He said he’d like to see the Federal Open Market Committee “return to a more normal run – eventually – but those who expect fast, fat and frequent rate hikes may be bracing themselves for disappointment.”
The greatest danger of inflation today is that expectations of high inflation feed into markets and into the views of consumers and businesses. But there isn’t much evidence of this yet. The Federal Reserve Bank of New York questions consumers about their expectations for three-year inflation. The median expectation in February, 3.8 percent, was just above the median expectation of 3.4 percent when the survey began in June 2013, and actual inflation was below 2 percent.
Rosenberg said he’d like to see the Fed halt rate hikes after this month’s hike, even though he knows its negativity is in disgrace. “Most Wall Street economists like to play it safe because it ensures the longevity of the job,” he said. “That’s why I started my company. My goal is not to make my customers happy. If it were, I would have started Rosenberg Circus instead of Rosenberg Research. “