There is a growing consensus that the Federal Reserve can successfully slay price inflation and bring the economy to a soft landing. After all, the economy appears to be chugging along. But as Friday Gold Wrap host Mike Maharrey explains, there are a lot of things bubbling under the surface that should temper that optimism. In fact, what we’re seeing today looks a lot like 2007.
Good news! The recession is off!
For months, economists predicted the Federal Reserve’s rate hikes to fight price inflation would spin the US economy into a recession. But there is a growing consensus that the central bank can slay price inflation while guiding the economy to a “soft landing.”
Economists Bob Murphy and Jonathan Newman say, “Not so fast!”
Flashing another recession warning sign, credit card spending suddenly fell off a cliff in June.
American consumers have been using credit cards to make ends meet for months, but with credit card debt at record levels, rising interest rates appear to have slammed the door on spending. Credit card debt contracted in June for the first time since April 2021, according to the most recent data released by the Federal Reserve.
Is price inflation really heading back toward the Federal Reserve’s 2% target?
Most people in the mainstream seem to think so, and the recent drop in the consumer price index (CPI) appears to support this belief. Price inflation has trended downward over the last several months, with the annual CPI falling from a high of 9% last year to just 3% in July. But I don’t think the Fed has won the inflation fight and I don’t believe the central bank’s sanguine inflation outlook is correct.
I think easing price inflation is transitory.
Good news. The looming US recession has been canceled.
Or has it?
Janet Yellen recently said she doesn’t think the US economy will slip into a recession. Friday Gold Wrap host Mike Maharrey explains why he doesn’t think we should put a lot of stock on Janet’s prognostications, and he goes on to point out some major fissures in the economy and financial system that are opening up under the surface.
Americans continued to run up credit card debt in May, but borrowing for big-ticket items tanked. This could indicate that cash-strapped, over-leveraged consumers are reaching the end of the rope.
American consumers borrowed another $7.2 billion in May, increasing total consumer debt to a record $4.865 trillion, according to the latest data released by the Federal Reserve.
The Federal Reserve has hiked interest rates to levels not seen since before the financial crisis in 2008. The money supply had contracted at a rapid rate. This should cause the economy to slow down. Yet month after month, we get strong job numbers, rosy economic headlines, and assurances that the economy remains robust.
What exactly is going on here? Why hasn’t the predicted recession materialized yet?
There is the mainstream and market perception of what going on in the economy and financial system. And then there’s the underlying economic reality. In this episode of the Friday Gold Wrap podcast, host Mike Maharrey talks about the growing divergence between the two in the context of the June Federal Reserve meeting and the latest CPI data.
In this episode of the Friday Gold Wrap, host Mike Maharrey engages in a little “I told you so!” discussing a couple of things he got right, including his assertion that the real problems would start after the debt ceiling deal and that it was important to keep your eye on the commercial real estate market. He also talks about the yo-yoing gold price this week.