The Necessary Evil: How the Fed is causing a financial recession
Fed decided to raise 75 basis points to fight the ongoing inflation.
Seventy-five basis points would be the highest rate hike in 28years, which will be a tough decision for Fed.
The rate hike is still a necessary evil.
If Fed is genuinely independent of the white house, Joreme Powell needs to raise an entire point to calm the heating inflation. Inflation will never be dealt with if the Fed decides not to raise enough interest rates.
Rising energy, food prices, and more expensive personal loans and credits will eventually result in higher default rates.
A financial recession is likely to occur even when the Fed makes the right decision and decides to raise interest rates aggressively. Either way, raising interest rates is a necessary evil, even if we are going through an economic recession.
From the 1970s to 1981, mortgage rates skyrocketed from 7.25% to 17.5%.
Consumer sentiments are low, and the total economic demand is shrinking; this is what economists call a ‘nightmare.’ When the government fails to give the consumer confidence, stagflation will cease the economy and employment growth.
History does not simply repeat itself, but it does rhyme.
The Biden administration’s aggressive liquidity stimulus policy and bail-out plan create excessive liquidity, thus further inflating the entire economic system; this is a perfect example of how Washington is spending taxpayer money without a solid plan.
Biden’s package failed to expand the total demand of the economic system, and taxpayers are now paying significantly more money to bail out the Fed.
The Biden rescue bill is misused, wasting hundreds of millions of dollars, and igniting inflation.
Biden tried to dump oil reserves(SPR) to stop the oil price from surging, and it had no use since the war disrupted the global supply chain.
Russian and Ukraine war was a colossal mistake. The US has failed in its promises to the Ukrainian people. If NATO stands strong, Putin will think twice before launching the invasion. The weak gesture has threatened the global world order and created fragility in the financial system.
Now the Fed should not only take care of its own mistakes, and it has to take care of Mr president’s mistakes. The solution is easy.
A financial recession is inevitable, and this will be an easy excuse for the authority to escape the blame and divide our attention from what matters the most.