Fed’s Inflation Mission Has Recession Destination and Hard Landing for Stocks By Investing.com

 

Household wealth in the United States fell for the first time in almost two years during the first quarter of 2022, according to a Federal Reserve report released on Thursday.

The value of the country’s household net worth fell to $149.3. trillion, from a record high of $149.8 trillion at the end of last year. The decline was mainly due to a $3 trillion plunge in stock prices, though real estate values also rose.

Despite the rising interest rates, home prices continued to increase in March. According to a report released by S&P CoreLogic, the average price of a home rose to 20.6% from a year earlier.

The Fed’s decision to stop supporting the stock market and raise interest rates has prompted many experts to predict that the country’s wealth bubble will eventually burst. Toews noted that a reduction in home prices and financial asset prices would be the best way to address inflation.

The Fed’s actions will also have to be followed by a reduction in the supply and demand imbalance in the labor market to bring down inflation. Doing so will help prevent the consumer from feeling less well-off.

According to Williams, the Fed will not be able to achieve 2% or 3% inflation as long as wage growth continues to increase.

Despite the tight labor market, Williams noted that it could become a “great application” for the Fed in 2023 as the country’s employers will not be able to find enough workers.

The shortage of workers will also cause companies to expand their operations in areas such as software and blockchain technology. Williams noted that this will get broader as the year goes on.

Many economists are now arguing that the country is entering a recession, though some believe that the economy will avoid a deep slowdown. For others, the lack of major capital expenditures by businesses and the excess savings built up over the years will prevent a recession.

Despite the various factors that have caused many economists to believe that the country is entering a recession, Williams noted that the lack of major capital expenditures by businesses and the strong consumer are two factors that will prevent a major downturn.