The Fed Is Inducing A Recession To Deal With Inflation

( With inflation in June hitting a 40-year high of 9.1 percent, the Federal Reserve is likely to continue raising interest rates as a way to contain inflation.

Last month, the Fed began raising interest rates for the first time in 30 years. With last week’s June inflation numbers, it is likely the Fed will boost interest rates again during its upcoming meeting next week.

Already there are signs that the Fed’s push to combat inflation is slowing economic growth. The Atlanta Federal Reserve anticipates another contraction in the second quarter of 2022. Other indicators of a recession are the collapse in consumer confidence, a crumbling housing market, and a reduction in export competitiveness due to a strong dollar.

The Michigan consumer survey found that persistent inflation has caused consumer sentiment to plummet to its lowest level in seventy years.

Since the start of the year, home mortgage rates have nearly doubled reducing the affordability of housing to its lowest level in 30 years. As a result, mortgage demand is declining.

Then there’s the financial markets.

Since the beginning of the year, equity and bond markets have lost about 20 percent of their value while the crypto market has bottomed out by 70 percent. All of this has wiped out around $15 trillion, or 70 percent of GDP, in household wealth.

International commodity prices have also declined sharply across the board in anticipation of a weakening global economy. In the last two months, oil, copper, lumber, and wheat prices have fallen by more than 20 percent, which could mean US inflation has already peaked.

Last year the Fed let inflation grow out of control and bubbles in the equity and housing markets were able to form as the Fed kept interest rates long and flooded the market with liquidity.

Now the Fed is making the opposite mistake by rapidly increasing interest rates while withdrawing market liquidity.

If the Federal Reserve continues on its current path, it risks an economic recession and the bursting of the bubbles in the equity and housing markets.