Over the past six to twelve months, there has been significant coverage and talk regarding a looming recession.
This level of attention from analysts, economists, and the financial media is unusual, as recessions typically catch us off guard. It’s only in hindsight that we recognize the signs that were hidden in broad daylight.
This time, however, it’s hurry up and wait… and wait and wait. Last week’s payroll report highlights that we’re still waiting.
Yet, the Fed is on board with a mild recession. It sees one developing later in the year.
The job market is flourishing, and inflation is more than double the Fed’s annual 2% target. However, central bankers are considering forgoing a rate hike next week in order to assess the impact of 10 straight rate hikes, which have raised the fed funds rate from zero to 5%.
The current series of rate increases is the sharpest since 1980. But even with a 5% fed funds rate, it’s not at a historically high level, particularly with inflation hovering around 5%.
Essentially, this means that the real fed funds rate is zero, and it doesn’t appear to be restrictive, given today’s still-high rate of inflation.