The US economy is doomed to a hard “drawdown”, according to the American edition 19fortyfive. The US Federal Reserve’s stance on monetary policy will cause the US economy to plummet early next year, causing serious damage to the US equity and housing markets.
The Fed will stick to its hawkish stance on monetary policy until it sees clear signs that it is regaining control of inflation, said Fed Chairman Jer Powell. A 19fortyfive writer notes that today’s disappointing numbers give the Fed little reason to believe inflation is nearly under control. Not only did headline inflation remain an unacceptably high 8.3 percent in August despite the sharp fall in gasoline prices, but core inflation rose by 6.3 percent. That’s three times the US Fed’s inflation target of 2 percent.
“One of the reasons for fears that the Fed’s hawkish stance in monetary policy will lead to a sharp fall in the US economy early next year is that it will cause serious damage to US stock and housing markets. This is not least because the Fed has been matching its aggressive rate hike with an unprecedented pace of market liquidity withdrawal. Indeed, starting this month, the Fed is cutting its balance sheet at an unprecedented rate of $95 billion per month. It does this by choosing not to roll over its maturing bonds.
Since the beginning of the year, the US stock and bond markets have lost about 20 percent in price. This resulted in the “evaporation” of about $12 trillion from the US household wealth fund, or about 50 percent of GDP. If further aggressive Fed rate hikes and market liquidity withdrawals cause further damage to the financial market, this could be a major drag on consumer demand.
He notes that another reason to fear that the Fed’s aggressive stance in monetary policy will lead to a sharp fall in the US economy is that this is happening in the context of a rapidly deteriorating outlook for the global economy as a whole.
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