An economist with Bank of America is warning that the Fed wants a recession—and that it is prepared to go as far as it needs to succeed, even at a high cost.
Key Details
- In a Wednesday interview with CNBC, Bank of America economist Ethan Harris warned that the Federal Reserve is willing to push the U.S. economy as far as it needs to in its fight to get inflation under control, Insider notes.
- “They told us they want a weak economy. I think that’s a very friendly way of saying you want a recession. The fact that the signals that a recession is coming isn’t going to stop the Fed,” says Harris.
- Inflation rates peaked in 2022, with a high of 9.1% in June. The Fed promised a bullish response to return inflation below 2%, hiking interest rates seven times to 4% to 4.25% by December.
- Fed Chair Jerome Powell has openly acknowledged that the Fed expects a rise in unemployment and a possible recession but would prefer those adverse effects to that of entrenched high inflation.
Why It’s Important
The Fed has made its intentions to continue hiking interest rates clear. While some cooling inflation rates in November resulted in a lower hike in December, the Fed says it may raise interest rates above 5% in 2023 until it begins seeing results.
As we previously reported, early results don’t appear to be promising. Harris responded to the minutes from the Fed’s December meeting released on Wednesday, noting that the Fed will continue pushing until the market takes its decisive actions seriously. He notes that the market hasn’t reacted with the belief that the Fed will hold to its current trajectory but warns that it likely won’t back down.
“Markets don’t believe the Fed’s serious about fighting inflation. I think they’re wrong. I think the Fed will deliver more than the market is expecting,” says Harris.
“That echoes the views of other economists, who have warned that the central bank was unlikely to back down on its aggressive monetary tightening regime to prevent inflation running out of hand. Prices have barely cooled from a 41-year-high this summer, despite the fact that officials raised rates 425-basis-points last year to lower inflation,” says Insider.