Because a recession is all but obvious at this point.
While it may not be here now, we probably have more foresight into the fact that there will be a recession than ever before.
The Fed will intentionally create one to stop inflation, despite their talk of soft landing. The only hope otherwise is that inflation subsides on its own, which, given labor dynamics, is looking increasingly unlikely.
So the Fed has to choose between spiking unemployment to contain inflation, or letting inflation run wild. Powell doesn’t intend to be remembered as an Arthur Burns, so it seems most likely he will keep pressing until the recession comes.
Eventually stock prices will come down enough, and debt costs rise enough to actually cause the layoffs they need to pivot.
Final note that, due to public sector debt levels, we cannot choose a path of allowing moderately high inflation for a long period of time. The government budget will become insolvent without a mechanism to fund it, either at the short or long end of the yield curve. Or in short, either we need a quick and sharp recession, or the Fed to give up on the inflation fight so they can drop short end rates and let govt debt inflate away.
Otherwise the US govt will default within a few years.
While it may not be here now, we probably have more foresight into the fact that there will be a recession than ever before.
The Fed will intentionally create one to stop inflation, despite their talk of soft landing. The only hope otherwise is that inflation subsides on its own, which, given labor dynamics, is looking increasingly unlikely.
So the Fed has to choose between spiking unemployment to contain inflation, or letting inflation run wild. Powell doesn’t intend to be remembered as an Arthur Burns, so it seems most likely he will keep pressing until the recession comes.
Eventually stock prices will come down enough, and debt costs rise enough to actually cause the layoffs they need to pivot.
Final note that, due to public sector debt levels, we cannot choose a path of allowing moderately high inflation for a long period of time. The government budget will become insolvent without a mechanism to fund it, either at the short or long end of the yield curve. Or in short, either we need a quick and sharp recession, or the Fed to give up on the inflation fight so they can drop short end rates and let govt debt inflate away.
Otherwise the US govt will default within a few years.