Tomorrow the Federal Reserve's two-week blackout period will be lifted and Chair Jerome Powell is set to address the world. Strangely enough, yet not surprisingly, some mainstream economists and Wall Street analysts agree with the Fed that everything will be fine and a recession in the near future will be avoided.
To recap, CNBC notes that:
Expectations for a 50 basis point move in May rose to 97.6%, according to the CME Group’s FedWatch Tool.
Noting the long road ahead should take the Fed Funds Rate to 2.75%, which is a rate that hasn’t been seen since 2008, during the time of the Great Recession and national housing crisis.
In addition to discussing rates, the Fed’s March meeting indicated:
…the Fed eventually will allow $95 billion of proceeds from maturing bonds to roll off each month.
By listening to the meeting minutes and general comments, our central planner's outlook becomes clear. CNBC reports several telling quotes by the Fed Chair:
Powell noted that the other than pernicious inflation, the U.S. economy is “very strong” otherwise. He characterized the labor market as “extremely tight, historically so.”
He also addressed the possibility of a recession:
“Our goal is to use our tools to get demand and supply back in synch, so that inflation moves down and does so without a slowdown that amounts to a recession,” Powell said.
Between 50 bps rate hikes and increasing rates in the bond market, coupled with the potential to reduce the balance sheet by $95 billion a month, the Fed should be worried. The “very strong” U.S. economy that Powell cites could just be a mirage, and a Malicious Monetary Turnaround lays waiting on the horizon. This could inflict unfathomable capital destruction and market havoc; exacerbated when the Central Bank decides to first halt, then reverse its easy money stance.
In the future, some may call it a policy error, an oversight, or blame a Black Swan. Undoubtedly there will be much talk about how no one saw this coming, especially when mainstream outlets like CNBC start announcing unfavorable stats, such as negative growth:
Gross domestic product unexpectedly declined at a 1.4% annualized pace in the first quarter, marking an abrupt reversal for an economy coming off its best performance since 1984…
Then follow up with expert assurances in the same article, like this:
“This is noise; not signal. The economy is not falling into recession,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Then again with this:
…recession expectations on Wall Street remain low…
And again with:
While economists still largely expect the U.S. to skirt an outright recession…
And just in case anyone had their doubts that 2022 would be a difficult year:
Deutsche Bank sees the chance of a “significant recession” hitting the economy in late 2023 and early 2024, the result of a Fed that will have to tighten much more to tamp down inflation than forecasters currently anticipate.
What should be clear, is that when one of the largest media networks in the world, a chief economist, Wall Street, mainstream economists and even Deutsche Bank don’t seem too concerned, then this is not noise, it’s a signal. The boom-bust cycle is nothing new, and Fed induced market crashes, bursting of bubbles, and recessions come part and parcel with central banking.
