WASHINGTON (Pakistan Point News / Sputnik - 13th September, 2022) Inflation in the United States will likely decrease in the short term but is unlikely to fall below the US Federal Reserve's target rate of 2%, CEO of the financial services firm Sovereign Wealth Management Gary Korolev told Sputnik.
"The US is heading towards slower growth and a likely recession. That is continuing to signal that they will keep fighting inflation, and as long as employment continues to be relatively strong it only gives the Fed cover to continue with hawkish monetary policy," Korolev said. "Inflation will likely come down even drastically over the short term, however, the days of consistent below 2% inflation are likely behind us."
Korolev believes that recession is the likely outcome of the Fed's ongoing monetary policy moves.
"The most lagging indicator of a recession is unemployment. Given that it takes quite a while for companies to react and unwillingly let employees go," he explained. "The peak in unemployment often shows up well after the economy has already started improving. As you can see, the unemployment rate often peaks right at the end or even well after the recession is already over."
The Fed has raised rates by 225 basis points in four increases since March, with two back-to-back 75 basis point hikes in June and July, to curb runaway inflation.
US prices have been growing at around four-decade highs since late last year, although the closely watched Consumer price Index, or CPI, slowed to an annualized rate of 8.5% in July from a peak of 9.1% in June. The next CPI reading, for August, is due on Sept. 13.
The Fed's target for inflation is a mere 2% a year and it has vowed to raise interest rates as much as necessary to achieve that.
Economists have cautioned that the Fed could end up pushing the United States into a deep economy with its sharpest rate hikes in four decades, saying the high-flying housing sector and one-time ebullient stock market could be major victims.
Preliminary estimates show the GDP likely contracted by 0.6% in the second quarter after a 1.6% slowdown in the first quarter. Two straight quarters of GDP growth typically places an economy in a recession.
