{"id":534170,"date":"2023-01-03T04:14:47","date_gmt":"2023-01-03T01:14:47","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/will-the-fed-blink-in-2023-and-extend-our-economic-agony\/"},"modified":"2023-01-03T04:14:47","modified_gmt":"2023-01-03T01:14:47","slug":"will-the-fed-blink-in-2023-and-extend-our-economic-agony","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/will-the-fed-blink-in-2023-and-extend-our-economic-agony\/","title":{"rendered":"#Will the Fed blink in 2023 and extend our economic agony?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3d682968f91\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3d682968f91\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/will-the-fed-blink-in-2023-and-extend-our-economic-agony\/#%E2%80%9CWill_the_Fed_blink_in_2023_and_extend_our_economic_agony%E2%80%9D\" >&#8220;Will the Fed blink in 2023 and extend our economic agony?&#8221;<\/a><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9CWill_the_Fed_blink_in_2023_and_extend_our_economic_agony%E2%80%9D\"><\/span>&#8220;Will the Fed blink in 2023 and extend our economic agony?&#8221;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<div>\n<aside class=\"single__inline-module alignleft\">\n        <\/aside>\n<p>We Americans can foresee two significant economic risks in 2023. The first one is a probability that the Federal Reserve will get weak-kneed and stop raising interest rates before inflation is truly under control. The second risk is that Congress will continue to spend and borrow money irresponsibly. The likely mix of these two hazards would all but ensure our economic misery lasts much longer than necessary.<\/p>\n<p>Let\u2019s start with the first risk. In theory, to tame inflation, the Fed will need to push real interest rates not only high \u2014 as it has already done \u2014 but higher than the highest rate the Fed is now targeting and in fact\u00a0<em>much\u00a0<\/em>higher than most investors can remember. Such high rates will have two main effects: popping the stock market and real-estate market, along with any other asset bubbles we\u2019ve witnessed in recent years. The economic downturn that would follow would increase unemployment rates significantly.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"682\" src=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-354.jpg?w=1024\" alt=\"Prices across the nation have soared over the past year. \" class=\"wp-image-25214759\" srcset=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-354.jpg?quality=75&amp;strip=all&amp;w=1535 1536w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-354.jpg?quality=75&amp;strip=all 1024w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-354.jpg?quality=75&amp;strip=all&amp;w=512 512w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\"\/><figcaption>In 2022, American households spent an extra $10,000 due to inflation. <\/figcaption><figcaption><span class=\"credit\">AP<\/span><\/figcaption><\/figure>\n<p>On the other hand, if the Fed stops tightening too early, we will continue to suffer high inflation and slower growth. The rise in unemployment might be pushed back for a while, but because no inflationary policy can continue forever, it will inevitably arrive. And the longer we delay its arrival, the worse it will be. Unfortunately, in the face of such challenges, I worry Fed Chair Jerome Powell will not make the better (and more difficult) choice and hold the line on inflation.<\/p>\n<p>First, the pressure that he already faces from, for example, Sens. Bernie Sanders and Elizabeth Warren to stop raising rates will only intensify as the economy slows down and the unemployment rate increases.<\/p>\n<aside class=\"single__inline-module alignright\">\n    <\/aside>\n<p>Second, as interest rates increase, the amount of interest payments on the government\u2019s debt will grow. With no money to pay those interest obligations, the Treasury will increase borrowing \u2014 a move that will further raise the budget deficit. When complaints about rising deficits become loud, it won\u2019t be long before the Biden administration and others in Congress demand an end to the interest-rate hikes. This practice is called fiscal dominance, and it creates a real risk of further fueling inflation.<\/p>\n<p>Finally, there is the risk that market actors will also pressure the Fed to protect them against losing the inflated wealth they\u2019ve reaped as a result of two decades\u2019 worth of irresponsible monetary policy. In fact, Wall Street investors are showing signs that they believe the Fed may soon abandon its policy of high interest rates to avoid a recession. It\u2019s hard to blame them because that\u2019s exactly what the Fed has done in the past.<\/p>\n<p>So will the Fed blink?\u00a0Politicians aren\u2019t known for doing the right thing when times get hard, and it would be na\u00efve to assume Fed chairs are immune from this.\u00a0Powell, too, is a politician, as he demonstrated with his unwillingness to acknowledge the surging inflation problem \u2014 created by the government\u2019s own spending and stimulus \u2014 until it was too late. He could surprise us, of course, by courageously enforcing much-needed monetary discipline.<\/p>\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" loading=\"lazy\" width=\"1024\" height=\"682\" src=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-355.jpg?w=1024\" alt=\"The bill was flown to the Virgin Island for Biden to sign it. \" class=\"wp-image-25214765\" srcset=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-355.jpg?quality=75&amp;strip=all&amp;w=1535 1536w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-355.jpg?quality=75&amp;strip=all 1024w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-355.jpg?quality=75&amp;strip=all&amp;w=512 512w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\"\/><figcaption>Biden signed into law a new $1.7 trillion spending bill. <\/figcaption><figcaption><span class=\"credit\">POTUS\/<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Twitter<\/a><\/span><\/figcaption><\/figure>\n<p>The second threat comes from politicians in Washington, right and left, doing their best to make the mess caused by the Fed just that much worse. Indeed, just as the Fed is pushing interest rates sharply higher, irresponsible \u201cleaders\u201d are launching a new \u201cspend and borrow\u201d spree to the tune of $1.7 trillion all wr<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ed in the reckless end-of-the-year omnibus bill.<\/p>\n<p>This so-called bipartisan measure includes an increase of $76 billion in military spending over last year for a total of $858 billion (not counting $45 billion for Ukraine). Then you have $773 billion in nondefense discretionary spending, which is $43 billion higher than last year, a level already inflated by the COVID-19 response. Congress has really given up on the pretense of fiscal responsibility.<\/p>\n<p>This 4,155-page bill is guaranteed to be inflationary. It will make Jerome Powell\u2019s job harder and the rate hikes needed to control inflation larger. That in turn will only increase the chance the Fed will cave to pressure to extend the crisis further into 2023.<\/p>\n<p>But that\u2019s assuming the Fed won\u2019t cave to the administration and monetize all that new borrowing, adding more fuel to the inflation fire. The bottom line is this, people: Grab your antacids because if our leaders don\u2019t start thinking differently, 2023 is likely to be painful.<\/p>\n<p><em>Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior research fellow at the Mercatus Center at George Mason University.<\/em>\n                        <\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/nypost.com\/2023\/01\/02\/will-the-fed-blink-in-2023-and-extend-our-economic-agony\/\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Will the Fed blink in 2023 and extend our economic agony?&#8221; We Americans can foresee two significant economic risks in 2023. The first one is a probability that the Federal Reserve will get weak-kneed and stop raising interest rates before inflation is truly under control. The second risk is that Congress will continue to spend&#8230;<\/p>\n","protected":false},"author":1,"featured_media":534171,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2023\/01\/economic-agony-index.jpg?quality=75&strip=all&w=1024","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[137901,51421,77105,70550,70551,78738,991,91261],"class_list":["post-534170","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-1-2-23","tag-bernie-sanders","tag-elizabeth-warren","tag-federal-reserve","tag-inflation","tag-jerome-powell","tag-joe-biden","tag-recession"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/534170","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=534170"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/534170\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/534171"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=534170"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=534170"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=534170"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}