Yesterday we saw The Fed raise interest rates by 75 basis points. The rise marks the biggest jump since 1994. The purpose of the rate increase marks The Feds commitment to an aggressive path of tight monetary policy. The hope is this tight money policy will rein in inflation as it reaches new highs after the U.S. consumer price index jumped by an annual 8.6% in May alone. Some economists believe that the next stage in this whole economic process will be a shallow recession. More specifically, The Fed GDP tracker has indicated that a recession is on the horizon. This is because the Fed’s sharp hike will further depress the already slowing economy, a tradeoff made for the sake of potentially reducing inflation.
One question some have raised is if this recession will spread globally. Some experts such as Andrea DiCenzo, vice president and alpha strategies portfolio manager at Loomis Sayles, believe there is around 75% this will happen. Even so, the long-term effects of the Fed’s actions mean the global recession is likely to be shallower than previous recessions. On the other hand, some well-known investors like Kevin O’Leary believe the U.S. economy is much stronger than people think, and there’s “no evidence” of an impending slowdown or recession yet.
Where do you stand on the prospect of a recession and will we see one in the next few years?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.