Economists: Inflation Can’t Be Reined In Without Tanking The Economy

Economists: Inflation Can’t Be Reined In Without Tanking The Economy

John Hugh DeMastri on August 22, 2022

Nearly three quarters of business economists believe that the Federal Reserve will not be able to bring inflation back to its target of 2% in the next two years without inducing a recession, according to a poll by the National Association for Business Economics (NABE) released Monday.

Roughly 19% of respondents believed that the U.S. was already in a recession, with 53% believing that one will begin by the end of the first half of 2022, according to the poll. This data comes after four consecutive interest rate hikes from the Federal Reserve as inflation remains high at 8.5% in July and U.S. GDP shrunk for two consecutive quarters.

Only 3% of economists are “very confident” that the Federal Reserve will corral inflation without triggering a recession, typically referred to as a “soft landing,” with 10% “confident” and 14% “somewhat confident,” according to the poll.

JPMorgan CEO Jamie Dimon says “something worse” than a recession could be coming.

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Economists remained consistent in their opinions on fiscal policy over the past year, defined by the Federal Reserve as the way the government sets tax and spending policies, with 51% finding that current policy is “too stimulative” and 44% saying it is “about right,” according to the poll. Long-term interests became more prominent in 2022, with 59% of respondents arguing that the government should focus on medium-to-long term growth, up from 48% in March.

Opinions on monetary policy, or the ability of the central bank to achieve goals such as employment, growth and price stability, saw significant changes as the Fed raised interest rates for the fourth time in a row, according to the poll. Only 44% believed that current monetary policy is “too stimulative,” down from record-highs of 77% in March, with 46% saying monetary policy is “about right,” up from 22% in March.

The amount who believe monetary policy is “too stimulative” is much higher than is typical, while the number who believe monetary policy is “about right” is much lower than is typically, according to poll results dating as far back as May 1995. Just 9% of economists believed that current monetary policy is “too restrictive,” which is more typical, according to the poll.

The report comes a week after JPMorgan Chase Chief Executive Officer Jamie Dimon told investors on an investor call that he estimated there was only a 10% chance that the Fed was able to implement a slowdown without causing a recession, Fortune reported. Dimon believes that the Fed’s goal of bringing inflation down to 4% from 8% by the end of the year is “highly unlikely,” Yahoo! Finance reported last week.

The Inflation Reduction Act will have practically no impact on inflation, according to the University of Pennsylvania Penn Wharton Budget Model.