No one knows with certainty whether the Fed’s efforts to mitigate inflation will ultimately lead to a recession, but continued interest rate hikes may increase the likelihood.
Efforts to decrease rising prices while avoiding negative impacts on the labor market are no simple tasks. It’s a financial balancing act, and a slowing economy increases its fragility.
The Fed increased interest rates another one-half percentage point in December even though year-over-year inflation rose 7.1% in November.
As the dust settled from 2022 holiday sales, it has become clear that even though consumers don’t like higher prices, they were able and willing to pay them, with sales increasing 7.6% over the previous year.