Will the Government’s Anti-Inflation Efforts Spark a Recession?
Summary from the AllSides News Team
The Federal Reserve raised interest rates on Wednesday in an attempt to slow down the economy and bring inflation closer to its 2% target. Will these efforts backfire and push the U.S. into a recession?
Along with bond purchases, the Fed’s influence over interest rates is the federal government’s main tool for controlling inflation. However, raising interest rates makes borrowing money more expensive and can slow down economic activity. As the Fed began tackling persistent inflation with interest rate hikes, financial institutions and experts started predicting a possible coming recession in 2023.
In a Thursday interview with the Associated Press (Center bias), President Joe Biden said a recession was “not inevitable” and that “we’re in a stronger position than any nation in the world to overcome this inflation.” Biden’s comments came amid falling stock prices, sinking consumer confidence and rising mortgage rates.
Coverage was widespread across the spectrum on Thursday. While few commentators were confidently optimistic, some said there was still a way to both quell inflation and avoid a recession. However, both Fox Business (Lean Right) and CNN Business (Lean Left bias) featured headlines wondering whether a recession was “inevitable.”
Featured Coverage of this Story
From the Left
'A Big Mistake': Economists Warn Fed Rate Hikes Risk Plunging US Into Recession
The Federal Reserve's decision Wednesday to hike interest rates by 75 basis points—the largest increase since 1994—heightened fears among economists that the central bank's attempt to tame inflation risks plunging the U.S. economy into recession and inflicting more pain on vulnerable workers.
The Fed's move came on the heels of worse-than-expected federal data showing that inflation jumped 8.6% in May compared to a year earlier, prompting central bank officials to pursue more aggressive federal-funds rate increases, the Fed's blunt tool to rein in consumer prices.
From the Center
Fed Authorizes Biggest Interest Rate Hike In 28 Years, As Experts Worry Its Fight Against Inflation Will Spark Recession
The Federal Reserve on Wednesday instituted the largest interest rate hike in 28 years as it escalates its fight against the worst inflation in four decades and fends off criticism that it moved too slowly in easing pandemic-era stimulus measures, driving experts to increasingly question whether the economy is headed toward a recession.
From the Right
Escalating Oil Prices and Fed Funds Rates Preceded Every Recession Since 1957
In 1997, Former Federal Reserve Chairman Ben Bernanke, while still an academic, wrote a famous historical study for the Brookings Institution: “Systematic Monetary Policy and the Effects of Oil Price Shocks” with Mark Gertler and Mark Watson.
It began by documenting that “essentially all the U.S. recessions of the past thirty years have been preceded by both oil price increases and a tightening of monetary policy.” So here we are again tightening monetary policy at a time of unaffordable oil price increases.
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