The Fed’s own economists now expect a Goldilocks scenario: No recession, low inflation, and positive growth
Sep 8, 2023, 12:42 PM EDT
- Economists from the Federal Reserve Bank of Chicago predict inflation will cool without a recession.
- In a September report, they broke down a Goldilocks outlook for a soft-landing scenario.
- Further rate hikes may not be needed, and inflation could dip below 2% by next year.
The US economy may just skirt a recession after all and most of the effects of rate hikes have already taken shape, according to Stefania D’Amico and Thomas King, economists at the Federal Reserve Bank of Chicago.
In a new September report, they argued that the 11 rate hikes since March of 2022 have put the economy on track for a Goldilocks scenario of a soft landing, and there may no longer be a need for further monetary policy tightening.
D’Amico and King pointed to their vector autoregression model as reason to believe the Fed could hit its 2% inflation target by next year. The 500 basis points of rate increases since last March have curtailed output, and prices are on a downward cooling track.
“That model implies larger effects of monetary policy and faster policy transmission than other empirical models,” the economists said. “We estimate that although the majority of the effects on output and inflation have already occurred, the policy tightening that has already been implemented will exert further restraint in the quarters ahead, amounting to downward pressure of about 3 percentage points on the level of real gross domestic product (GDP) and 2.5 percentage points on the Consumer Price Index (CPI) level.”
The model’s estimates put CPI at 2.3% by the middle of 2024, and that’s in line with the Fed’s 2% target when using the personal consumption expenditure price index, the economists said.
So far, based on the analysis, tighter policy has resulted in 5.4 percentage points in the level of real GDP and 7.1 percentage points in CPI. That represents about 65% and 75% of the total tightening effects on the levels of real GDP and CPI, respectively, that will occur, according to the model.
It will take more time for those impacts to manifest in the labor market, which has proved resilient through the tightening campaign, but that doesn’t mean that more hiking will be needed. Policy has reduced total hours worked by about 4 percentage points, or about 40% of the total effect that is ultimately projected.
“Importantly,” the economists added, “the remaining 35%, 25%, and 60% of the total impact on the levels of real GDP, CPI, and hours worked, respectively, imply that past monetary policy tightening will exert further downward pressure of about 3 percentage points on real GDP over the next five quarters, 2.5 percentage points on the CPI over the next four quarters, and 6 percentage points on hours worked over the next eight quarters.”
Source: Markets Insider
If you wish to contact the author of any reader submitted guest post, you can give us an email at UniversalOm432Hz@gmail.com and we’ll forward your request to the author.
All articles, videos, and images posted on Dinar Chronicles were submitted by readers and/or handpicked by the site itself for informational and/or entertainment purposes.
Dinar Chronicles is not a registered investment adviser, broker dealer, banker or currency dealer and as such, no information on the website should be construed as investment advice. We do not support, represent or guarantee the completeness, truthfulness, accuracy, or reliability of any content or communications posted on this site. Information posted on this site may or may not be fictitious. We do not intend to and are not providing financial, legal, tax, political or any other advice to readers of this website.
Copyright © 2022 Dinar Chronicles