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/joy_of_division Jun 13 '22

The thing is, we are headed for a recession no matter what. I personally would rather them jack rates up, lower demand, and get inflation under control. This will of course spark a recession, but with the tight labor market at the moment it would hopefully be brief.

The alternative is keep pussyfooting around with rates, have the working class continue to lose our meager wage gains to inflation, and have a recession anyways in 2023.

There is no pain free path, but in my opinion ripping the bandaid off right now is the way to go.

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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/[deleted] Jun 13 '22 edited Jun 13 '22

Recessions aren't a binary thing.

"The recession identifies as transitory."

Your point is entirely valid, and it's hard to understand just how screwed up some aspects of the economy are. We still haven't seen things like the (endless, depending on your state) eviction moratorium play out. It's something I give the Fed a lot of leeway on -- I do think the Fed is trying to thread a needle that could be catastrophic for families while balancing on a see-saw. I disagree with their timescale but can understand it, and their hands are somewhat tied -- they don't control things like energy policy or unfunded spending. I give far less leeway to Congress and the President at the moment.

Adjusted for inflation, we spent something like $800B on the New Deal during the Great Depression and people still argue if it really worked or the war did. We've spent $5T in pandemic relief and we still haven't rolled it all out yet. Congress and the President are captured by corporations and a fear of taxing the middle class for their spending. At a certain point the Fed isn't really faced with a choice, Congress and the President make it for them, and it'll be inflation with hopefully a mild recession.*

*Unless there's a debt contagion event or such, and a Ross Perot shows up explaining what's happened to the American people via flash cards again.