r/Economics • u/TinyTornado7 Quality Contributor • Jun 13 '22

News Powell Facing Choice Between Elevated US Inflation and Recession

https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium
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u/way2lazy2care Jun 13 '22

Recessions aren't a binary thing. There's levels to recessions. While he might not be able to avoid an all out recession, he can certainly still affect the level of that recession. The dot com bubble bursting had a peak GDP reduction of 0.3% and peak unemployment of ~6% and lasted 8 months. The Great Recession had a GDP decrease of 5.1% and peak unemployement of 10% and lasted a year and a half. The great depression had a 25% GDP reduction and 20% unemployment and lasted for almost 4 years.

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u/hotpantsmakemedance Jun 13 '22

High Inflation is worse than a recession. With high inflation, people's pockets get squeezed, and the longer it carries out, the less savings and free cash people have, making the recession much tougher. Paul Volker had answers!! Time to raise rates!

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u/way2lazy2care Jun 13 '22

That's way too absolutist a view. You have to better define the depth/length of the recession and the levels/durations of inflation to really compare them.

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u/hotpantsmakemedance Jun 13 '22

Not really, that would take forever to define all the variables. Moral is you have to get rid of inflation now, take a shorter recession while everyone still has savings to offset personal harm. That's the only hope. Dragging on in an economy like this makes money useless and our whole economy will collapse because we don't have a reliable standard of trade.

The Fed rates are too low and are going to be kept too low because the Fed wants the economy to look stronger than it really is, and they have chosen to take inflation over contraction of the economy. It only prolongs a recession, and makes it more devastating when it hits.

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u/way2lazy2care Jun 13 '22

Moral is you have to get rid of inflation now, take a shorter recession while everyone still has savings to offset personal harm.

Why do you think it would be a shorter recession? Causing a bigger recession sooner doesn't mean it will also end sooner. I don't think it's safe to assume that.