Stuck

There are many sticking points in the American economy these days.  Inflation comes to mind.  So does our Federal Reserve.  Or what about the growth rate of the economy?  It’s not quite molasses-like just yet, but the pace of output is gaining viscosity.

Inflation is rising well-above the target rate set by the Federal Open Market Committee (FOMC).  They’d prefer to see costs rise no faster than 2.0 percent on an annual basis.  It has grossly exceeded that for over 18 months.  You have to go all the way back to March 2021 when the FOMC’s preferred measure of inflation was last at 2.0 percent versus a year earlier.  The very next month, it jumped to 3.1 percent and hasn’t been below 4.0 percent since September 2021.  Unfortunately for America’s central bankers, their forecasts for inflation were stuck on the word transitory.  In December 2020, they projected prices would rise by less than 2.0 percent in each of the following two years.  A year later, they adjusted their expectations for 2022, indicating an inflation rate of 2.6 percent.

Now the Federal Reserve is stuck between a rock and a hard place.  They are charged with two mandates from the U.S. Congress: maintain price growth stability and full employment.  Not being able achieve the former, they are now stuck with virtually no alternative but to likely abdicate the latter.  America’s economy has already suffered back-to-back quarterly downturns in output.  Despite an economy stuck in a rut, the Federal Reserve is sticking to its interest rate hiking policies.  It’s unclear when the next recession will officially start, but many, including Atlas, think the answer is soon.  If businesses start experiencing material declines in revenue, they’ll be stuck in the unenviable position of needing to reduce their payrolls.

The 21^st century has been a trying one for the Federal Reserve.  Monetary policy makers have stuck their collective neck out to come to the rescue of recessions, in the aftermath of attacks on U.S. soil, to help during the Global Financial Crises, and in the face of a world-wide pandemic.  Unfortunately, it might really be destined to sit the next recession out, or at least get a later-than-normal start to helping growth begin again.  We have more than two months left in this year, but 2023 might be one the central bank’s most difficult yet.