Fed OK Plunging Economy Into Recession: Economist

If there needs to be a US recession to bring inflation down to appropriate levels, the Fed would be fine with that, says a Wall Street professional.

“Unfortunately yes [the Fed would be OK with a recession]. I’m going to say yes,” said Jennifer Lee, senior economist at BMO, on Yahoo Finance Live. “And the Fed has softened its tone a little bit in the last couple of months. They used to say that they could probably do this and achieve a smooth [economic] landing. But now they have already said that there will be pain felt. And it’s unfortunate, but this is what happens when a central bank is tightening aggressively.”

Lee added that he is looking for a “mild recession” in the US.

The Fed’s aggressive stance has spread to many areas this year.

Federal Reserve Board Chairman Jerome Powell looks at his notes during a conversation with leaders from organizations including nonprofits, small businesses, manufacturing, supply chain management, the hospitality industry, and the hospitality industry. housing and education at the Federal Reserve Building, on Friday, Sept. 23, 2022, in Washington. (AP Photo/Manuel Balce Cenata)

The US dollar has soared against its counterparts abroad, hitting quarterly sales of major multinationals like Nike and FedEx. Mortgage rates have risen to almost 7%, stunting demand for homes. Economic growth, measured by Gross Domestic Product (GDP), slowed in the first half of the year.

Meanwhile, the Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC), and the Nasdaq Composite (^IXIC) continue to be mired in double-digit percentage declines for the year.

The tone of the markets may not improve much at the end of the year, as companies use the upcoming earnings season to warn of future economic growth and stubbornly high costs.

“The dollar is very strong and interest rates are going up very fast,” Harvard University economics professor and author Ken Rogoff warned on Yahoo Finance Live. “So I think the idea that it’s going to be a really mild recession, if it is, would be a lucky one. I’d say it’s going to be a tough trade-off for the Fed once the numbers start to settle.”

brian sozzi is a general editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.

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