Federal Reserve's rate hikes likely to cause a recession, research says

[andhra_jp]

Can the Federal Reserve keep raising interest rates and defeat the nation's worst bout of inflation in 40 years without causing a recession?

Not according to a new research paper that concludes that such an "immaculate disinflation" has never happened before.

"There is no post-1950 precedent for a sizable ... disinflation that does not entail substantial economic sacrifice or recession," the paper concluded.

The perception that the central bank will need to keep raising borrowing costs was reinforced by a government report Friday that the Fed's preferred inflation gauge accelerated in January after several months of declines. Prices jumped 0.6% from December to January, the biggest monthly increase since June.

Using the historical data, the authors project that if the Fed raises its benchmark rate to between 5.2% and 5.5% — three-quarters of a point higher than its current level, which many economists envision the Fed doing — the unemployment rate would rise to 5.1%, while inflation would fall as low as 2.9%, by the end of 2025.

Inflation at that level would still exceed Fed's target, suggesting that the central bank would have to raise rates even further.

In December, Fed officials projected that higher rates would slow growth and raise the unemployment rate to 4.6%, from 3.4% now. But they predicted the economy would grow slightly this year and next and avoid a downturn.

https://www.cbsnews.com/news/recession-inflation-federal-reserve-interest-rate-hike-2023/

[andhra_jp]

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