Is recession a certainty?

A year ago the Federal Reserve launched its first attack against inflation. Subsequent months saw much larger hikes, reaching 4.5%, with inflation falling to 6.4%, down from 11% last summer. But the US jobs market has been stunningly resilient, posting an unemployment rate of 3.4%.

US Fed could have tamed inflation to around 4% by December. But data shows inflation in the US & EU running hotter than expected, putting pressure on the Fed and ECB to redouble efforts to tamp down growth by raising interest rates. This has dashed hopes of a pause in rate increases. investors are now betting that the Fed’s critical policy rate will peak at 5.45%, higher than forecast of 5.1%.

The Fear is that the Fed will cause a recession with its rate hikes. They reduced the level of rate hikes, from 0.75% to 0.5% in December and then 0.25% in Feb. There are trouble spots though: While US & EU housing is in a slump, manufacturing has been contracting for the past three months. Those conditions are consistent with what some economists have called “rolling recessions,” in which the entire economy doesn’t contract but individual sectors do. A mild recession might be the best case scenario.