Advisors Warn of Looming Recession as the Federal Reserve Lags on Inflation


Author: Maria Andretti

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Since the pandemic struck in February 2020, the United States economy has been needing resuscitation. Several pieces of legislation have been signed to help bring the economy back on its feet and the country has seen great improvement. However, the National Bureau of Economic Research strongly believes that the country is still in a recession. 

Although unemployment and several other indicators appear promising as the pandemic winds up, the personal consumption expenditures price index appears to be 3.4% higher than May 2020. This index, being the Federal Reserve’s most trusted indicator for inflation, has exceeded the Central Bank’s 2% target. 

What do these signs mean?

Perhaps traders have garnered a significant amount of profit from exchanges like Capitalix and Plus500. However, these signs don’t look good for the country’s economic landscape. With inflation rising, the country is threatened by a looming recession. 

Although the National Bureau of Economic Research already thinks we are in a recession, experts believe that things could get worse. Early this week, Mohamed El-Erian, the chief economic advisor of Allianz commented on the state of the country’s inflation. He insinuated that things are worse than they look and that the Federal Reserve is displaying a dangerous level of nonchalance towards the increasing inflation.

“Every day I see evidence of inflation not being transitory, and I have concern that the Fed is falling behind and that it may have to play catch-up, and history makes you very uncomfortable if you end up in a world in which the Fed has to play catch-up,” El-Erian told CNBC on Monday. 

What is the Fed doing about this?

With the pandemic disrupting economic activities last year, 2020 has presented a not-so-good benchmark to measure the YoY performance of economic indices. The Federal Reserve believes that this poor performance in economic indicators is a result of last year’s COVID-stricken performances which was evident across the globe. 

It’s hard to tell, however, whether these are excuses or informed opinions of the Federal Reserve officials. For what it’s worth, though, inflation is a major challenge to our country’s economy, and judging the population, a slightly above increase can be detrimental. 

What does the future look like?

El-Erian is convinced that the Fed is lagging behind on inflation matters. Since its officials are not being proactive about the situation, he fears that the country may be on the defense when things become clearer. 

Being on the defensive against rising inflation and an economic recession, the Federal Reserve may be forced to increase interest rates and change monetary policies sooner than they planned. This could be catastrophic to the country’s plans towards a more sustainably fruitful economy. 

What about the White House? 

On Tuesday, the White House made moves to sign an executive order that pushes antitrust enforcement against big companies across the United States. This order will restrain big tech companies and corporate monopolies that have operated for several years with minimal regulations. 

With companies in the private sector having a significant influence on the country’s economy, we are still unsure how this antitrust enforcement will affect inflation or prevent the threatening inflation. 

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Maria Andretti is an Administrative Assistant with eight years of experience working alongside the VP finance of a Fortune 500 company.