Meet Kevin: The Worse, 2nd Wave Massive Economic Correction
The Federal Reserve has now been raising interest rates for over a year to slow down inflation. However, as interest rates are essentially the “cost” to borrow money, higher rates have made it less attractive to borrow.
That impacts everything from car and home payments to a willingness for corporations to borrow and expand. That’s why rising interest rates have led to bank failures, and a higher risk of a recession.
But, if the Fed stops raising interest rates while inflation still remains higher than average, it risks a second wave. Another wave of inflation, coming while the economy is slowing down, leaves a high risk of stagflation.
That’s similar to the economy in the 1970s. That period saw slow growth and high inflation. And, overall, the stock market moved nowhere for about 12 years while this economic pain played out.
Some Fed officials are already predicting a recession this year. While that could help drive inflation rates lower in the short-term, it also means millions of job losses to get there.
We’ve also seen for the past few years that trends take longer to play out than expected. It took nearly a year after the massive Covid-era money printing to see inflation peak. So by the time the Fed reacts to a second wave of inflation, it may mean more unnecessary pain for the economy.