With inflation at a four-decade high, a growing number of forecasters worry the U.S. economy may be headed to a recession as the Fed gears up to raise interest rates aggressively:
Employers are boosting wages to recruit workers as staffing shortages continue to linger. That's raising the prospect of continued high inflation and aggressive interest rate hikes from the Federal Reserve. A growing number of forecasters now believe a recession is on the horizon as the Federal Reserve gears up to raise interest rates sharply to combat the highest inflation in more than 40 years.
As a result, economist Matthew Luzzetti believes the Federal Reserve will have no choice but to crack down hard, with significantly higher interest rates. An activist holds a placard demanding a $15-per-hour minimum wage and tips for restaurant workers during a rally at the U.S. Capitol earlier this year. For much of past year, the Fed thought inflation was primarily the result of supply chain snarls that would work themselves out once the pandemic eased.
But prices for many other items continued to climb, thanks to consumers' insatiable demand for goods and services. Summers argues that it would have been better to turn the taps off sooner. Mopping up now from the resulting high inflation is likely to be painful.
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