I have spoken to alot of black people who act like 2008 wasn't that bad or don't remember. I was in banking and felt the opposite. This upcoming recession will be worse than that right?
No one knows till it happens. But I do think the next recession may not be as sharp, but might be very prolonged, kinda like slowly letting an air out of a balloon.
I was still a teen during the last recession. I know my dad was laid off but before his lay off he got another/better job. My mom was still working at the time. Parents actually bought at the bottom of the housing crash.
Speak to me like I’m 6, are the factors leading to inflation vs. the factors leading to recession basically inverse?
Ie, do we need to hike rates and enter a recession to fight inflation? Other side, would we need to ignore rates and continue to let inflation skyrocket in order to avoid a recession? Is it zero sum?
Inflation is generally a monetary (demand) issue. Too much money chasing too few goods. However, as we’ve seen in the energy markets, there is a supply side component as well.
What the Fed is trying to do is curtail economic demand by making it more expensive to borrow money and thus limit spending (the US is a debt based economy). Interest rates being so low for so long made it “cheap” to get money aka credit. Moreover, the Fed increased the total money supply some 40% in the past 3 years give or take.
In a few months the Fed will start unwinding its balance sheet / selling its assets (bonds, MBS etc) on the open market to try “suck” money out of the system. After that it plans to destroy the money.
In theory, if there is less money chasing goods, that should slow the rate of inflation, but that drop in demand would trigger a recession. But this situation is a little tricky in that there are some aspects of the inflation out of the Fed’s hand, namely energy markets.
You could see a situation where they hike rates but inflation remains high because of the high cost of oil/energy. Since energy is an input in pretty much every industry, an increase in energy costs is almost a direct increase in production, shipping, manufacturing costs which get pushed to the consumer.
Outside chance we could see a recession, high IR, high prices AND relatively high inflation.
Also, the Fed hiking IR isn’t an exact science to cool demand. Just a tool they think will influence spending and borrowing behavior. There are external factors that it doesn’t influence.
