There will not be a soft landing.
When has there ever been a soft landing and how would raising rates into a recession ever result in one? Raising rates takes 1 year to come through to the real economy - we haven't even seen the impact yet, only on stock prices which foreshadow the real economy and again are a leading indicator. They will raise till unemployment starts to rise.
Unemployment is the goal of this Fed policy - that is the point - cause unemployment so that inflation goes away.
The reality is we cannot see the future of our incredibly complex, ever-changing economy. Sure, this hasn't happened in the past, but on the other hand the economy today is vastly different than it was even fifty years ago. Not to say we couldn't end in a recession - of course that is a distinct possibility - but the reality is that we don't have a ton of history to draw on when it comes to post-pandemic recessions exacerbated by supply chain issues and large-scale war in major energy-producing countries.
I wonder if you've shorted the equities markets to the greatest degree practically possible given your financial situation? If not, then I think you're phrasing things with too great a degree of absoluteness.
In terms of the Fed's goal, it is reduction of inflation. Unemployment is both a driver and a signal of that, but it's not the ultimate goal. And besides, a rise in unemployment doesn't guarantee a recession - we're at 3.5% and folks from the Fed have said they see 4% as consistent with keeping inflation stable at an appropriate level. It is absolutely possible to have 4% inflation and not be in a recession.
High interest rates causing unemployment and reducing investment is the lever they will use to defeat inflation, it's very very hard to get right and the Fed has a long track record of getting it absolutely wrong (including over the last decade when they stoked a massive asset bubble in the US and all sorts of crazy behaviour like NFTs and crypto speculation). I suspect they will get it wrong this time too.
The Fed created this bubble (and arguably others since 2000) with loose monetary policy, and now they're trying to kill it with tight monetary policy - what could possibly go wrong!
The equities market doesn't have great correlation with the common pleb's job outlook so it makes no sense to short the equities market based on these kind of predictions.
If we're making predictions about recessions based on history, then it seems pretty clear that the result of one will be a market decline.
Huzzah. /s
Many of these businesses being hit were long overdue for a fall and behaving highly irrationally. This borders on the severity of the .com bust, though it does appear to be less severe.
How do we know it won't be worse either? We could be heading into a downturn and turmoil to rival the great depression.
I don't think this is remotely true - the .com bust killed off a huge number of companies (and an enormous amount of market cap) that weren't profitable and had no real path to profitability. This time we're talking about layoffs at companies like Meta and Amazon that are just throwing off money every quarter.
All had massive amounts of domesday comparisons to the Great Depression.
None came close.
Irrationally businesses being hit hard is a normal part of the economic cycle.
The big question is “is this recession going to reveal some hideous flaw in our financial system we didn’t know about and couldn’t plan for.”
So far the answer is “no” - just like the dot com burst, and unlike the Great Recession and the bond crisis of the early 90s.
The fed is basically a team of scientists when it comes to monetary policy, and meanwhile congress is essentially warring factions of drunk, catty sorority girls when it comes to fiscal policy. It's unfortunate.
If instead of the massive tax cut passed in 2017 we had passed a 2 trillion dollar infrastructure spending bill (and I'm talking 2 trillion in additional infra spending, not the watered-down "1 trillion" that included routine spending) we could've been on a solid footing for supply capacity that could've fought inflation without targeted killing of the working class.
That’s already happening. Bank reserves are being tightened up. Plus banks do that anyways when economic outlook looks poor.
I think it would be terrible to legislate any of this. The fed is already under enough political pressure.
Can you image politicians trying to control the economy? They’d screw it up for sure.
Why would this be a goal?
It sucks, but it is what it is. The rich keep getting richer and the poor keep getting poorer.
This isn't conspiracy speak, JPowell has made this very clear.
