Will The Federal Reserve End Inflation By Causing A Recession?

Look for the Federal Reserve Board’s policy statement on Wednesday, February 1st to help determine whether the inflation crisis ends in a recession. 

The Federal Reserve is at the tail end of a historic battle against the worst inflation in several decades. The central bank hiked rates seven times since March 2022 and is expected to raise rates again Wednesday, when its policy statement is released at the conclusion of the Federal Open Market Committee’s monthly two-day meeting.

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If the hike is 25 basis points, it will keep alive hopes for averting recession and make a recession in 2023 less likely. If it’s 50 basis points, then the Federal Reserve decided to snuff out the insipid inflation threat even if it makes a recession much more likely.

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The latest consensus forecast of the 60 leading economists polled quarterly by The Wall Street Journal is for a mild contraction in the second quarter of 2023. One quarter of negative growth would not constitute a recession, and the final two quarters of 2023 are expected to be positive economic growth, although not strong. The point is, the average leading economist is calling for a soft landing and not a recession.

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The Standard & Poor’s 500 stock index closed Friday at 4,070.56 gaining +0.25% from Thursday, and+2.46% from a week ago. The index is up +81.93% from the March 23, 2020, bear market low and -15.13% lower than its January 3, 2022 all-time high.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock’s weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

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