### Summary
Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment.
### Facts
- đ Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly.
- đ Core inflation has been stuck at 5.8% for the past three quarters.
- đ The average mortgage rate is steadily climbing towards 6%.
- đ There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending.
- đ° Demand for residential mortgages has fallen 32.9% in the six months ended March.
- đ The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high.
- â˝ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades.
- đŻ The OCR mostly targets domestic, or non-tradable, inflation.
- đŻ The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution.
- đ The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now.
- đ¤ There is doubt about whether inflation will drop below 3% in September 2024, as predicted.
- đ˛ Another rate hike may be required to achieve the Reserve Bank's inflation target.
- đą Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
U.S. economic growth may be accelerating in the second half of 2023, defying earlier recession forecasts and leading to a repricing of long-term inflation and interest rate assumptions.
Despite optimistic economic data and the belief that a recession has been avoided, some economists and analysts believe that a recession is still on the horizon due to factors such as the impact of interest rate hikes and lagged effects of inflation and tighter lending standards.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
The Federal Reserve aims for a "soft landing" in guiding the US economy by raising interest rates to control inflation while avoiding a recession, with signs of stabilization appearing in Jackson Hole's economy as supply chains normalize and pricing pressures ease.
Cleveland Federal Reserve Bank President Loretta Mester believes that beating inflation will likely require one more interest-rate hike in the U.S. and then pausing for a while, although she may reassess her previous view of rate cuts starting in late 2024, and she aims to set policy so that inflation reaches the Fed's 2% goal by the end of 2025 to prevent further economic harm.
The US jobs data for July suggests a cooling employment market, with a drop in labor demand and easing of hiring conditions, which could help lower inflation without a significant rise in unemployment rates.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
The U.S. economy may achieve a soft landing, as strong labor market, cooling inflation, and consumer savings support economic health and mitigate the risk of a recession, despite the rise in interest rates.
The latest inflation data suggests that price increases are cooling down, increasing the likelihood that the Federal Reserve will keep interest rates unchanged in their upcoming meeting.
Top economist David Rosenberg predicts that the US will experience a recession within the next six months due to the aggressive interest rate hikes by the Federal Reserve and the erosion of credit quality in credit card debt.
Despite recent optimism around the U.S. economy, Deutsche Bank analysts believe that a recession is more likely than a "soft landing" as the Federal Reserve tightens monetary conditions to curb inflation.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
Economists at the Chicago Fed argue that recent rate increases have brought inflation on a path to 2% without causing a recession, creating a "goldilocks" scenario for risk-taking in financial markets.
The odds of a recession in the US have collapsed, making markets vulnerable to any signs of the economy overheating and contributing to inflationary pressures.
Goldman Sachs CEO David Solomon believes the U.S. economy is unlikely to experience a significant recession, but warns that inflation will be more persistent than anticipated.
Consumer spending in the US is showing signs of cooling, with retail sales expected to slow down in August, indicating that the resilience of the consumer may be waning due to increased borrowing, depleted savings, and the impact of inflation.
Inflation in the Phoenix area has cooled down to 3.7% over the past 12 months, no longer ranking as one of the highest inflationary hotspots in the US, as the housing market has slowed down and the Federal Reserve's interest-rate increases have taken effect.
Despite rising gas prices, Americans remain optimistic about inflation easing, as expectations for inflation rates in the year ahead have fallen to the lowest level since March 2021, according to a consumer sentiment survey from the University of Michigan. However, concerns are surfacing about a potential government shutdown, which could dampen consumer views on the economy.
The economic data in aggregate suggests that the US economy is on track for a soft landing in 2024, with the Federal Reserve successfully slowing down economic growth and achieving its target inflation rate, despite concerns from the bear camp.
The Federal Reserve is expected to keep its benchmark lending rate steady as it waits for more data on the US economy, and new economic projections suggest stronger growth and lower unemployment; however, inflation remains a concern, leaving the possibility open for another rate increase in the future.
The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.
The Federal Reserve officials signal that they believe they can control inflation without causing a recession, with forecasts of higher economic growth and unchanged inflation outlook.
The Federal Reserve will continue raising interest rates until inflation decreases, even if it means more people losing their jobs, according to CNBC's Jim Cramer.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The bond market's recession indicator, known as the inverted yield curve, is likely correct in signaling a coming recession and suggests that the Federal Reserve made a major mistake in its inflation policy, according to economist Campbell Harvey. The yield curve, which has correctly predicted every recession since 1968, typically lags behind the start of a recession, with the average wait time being 13 months. Harvey believes that a recession is imminent due to the Fed's tight monetary policy and warns against further interest rate hikes.
The Federal Reserve has kept interest rates steady, but economists are skeptical that a soft landing for the economy is guaranteed due to high inflation and continued economic growth.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The US economy has triggered the fourth and final signal for a potential recession, and historical data suggests that recessions will become more frequent in the future due to government interventions and other factors such as inflation, tightening monetary policy, oil price spikes, and tight government budgets.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
Inflation is expected to rebound in 2024 due to a mismatch between supply and demand created by the shift from services to goods during the pandemic, as well as a chronic shortage of workers, according to BlackRock strategists. This could lead to higher interest rates and a higher risk of recession.
Deutsche Bank's economists are still predicting a US recession despite the ongoing resilience of the economy, pointing to rapidly rising interest rates, surging inflation, an inverted yield curve, and oil price shocks as the four key triggers that historically have caused recessions and are currently happening.
The soft landing scenario for the US economy is in doubt due to several economic shocks, including a potential government shutdown, high oil prices, the UAW strike, the resumption of student loan payments, and soaring mortgage rates.
The summer's positive economic indicators, such as lower inflation and strong job numbers, have led to optimism that the US will avoid a recession, but factors such as a potential auto strike, the resumption of student-loan repayments, and a government shutdown could contribute to a downturn. The combined impact of these factors, along with others like higher interest rates and oil prices, suggests that a recession may be looming.
The Federal Reserve will continue to raise interest rates as inflation resurfaces, according to Wall Street investor Caitlin Long, with big corporations benefiting while other sectors of the US economy are already in recession.
Investors and experts differ on the timing, but many believe a recession is inevitable in the near future due to falling consumer confidence and a slowing economy, prompting discussions about the Federal Reserve's interest rate moves.
The chaos in Washington and uncertainty surrounding a possible government shutdown could make it less likely for the Federal Reserve to raise interest rates again this year, as the economy and inflation appear to be cooling off.
The likelihood of the US avoiding a recession has decreased, as two factors, including a surge in interest rates and the potential for resurgent inflation, could push the economy into a downturn, says economist Mohamed El-Erian.