There’s a 70% chance that the U.S. will tip into a recession in the next year, according to former Treasury Secretary Larry Summers. “4% labor cost inflation just does not go with 2% underlying inflation. I think we’ve got a bit of a stagflationary problem developing,” said Summers. “That doesn’t mean the Fed’s objective should be to induce a slowdown, but if the Fed does what’s necessary to contain inflation, I think a slowdown is likely to come along,” he added. While the Fed is on track to raise its benchmark interest rate yet again this Wednesday, economists and traders wonder what will come next. If Powell suggests that the Fed will pause its hikes after this week, he will likely crush hopes of any rate cuts this year, said LHMeyer’s Derek Tang. In other news, Bridgewater founder Ray Dalio warns that the U.S. and China are “on the brink of an economic resources war” and turns to gold as a safe-haven asset.
Markets Insider/Jennifer Sor
The odds of a recession in the next year are 70% and the US has a stagflation problem brewing, former Treasury Secretary Larry Summers says
The US has a 70% risk of tipping into a recession within the next year as stagflation is beginning to take shape in the economy, according former Treasury Secretary Larry Summers.
In an interview with Bloomberg on Saturday, Summers pointed to worrisome inflation indicators, such as the Employment Cost Index, which rose 4.8% in the first quarter of 2022. Rising wages are a sign that inflation is still being felt in the economy, and could also worsen the trend and lead to a wage-price spiral, economists say.
“4% labor cost inflation just does not go with 2% underlying inflation,” Summers said, adding that inflation expectations could be beginning to become entrenched in the economy. “I think we’ve got a bit of a stagflationary problem developing.”
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Fed is set to raise rates yet again. After that, then what?
The Federal Reserve is on track to raise its benchmark interest rate for the 10th time on Wednesday, the latest step in its yearlong effort to curb inflation with the fastest pace of hikes in four decades.
Yet economists and Wall Street traders will be more interested in what the Fed and Chair Jerome Powell signal in a statement and at a news conference about a bigger question: What comes next? And on that note, they may be disappointed.
Economists say Powell will likely hint that the Fed is edging closer to a long-awaited pause in its rate increases. Yet he won’t necessarily send a clear sign that this week’s hike will be the Fed’s last. Instead, he will probably stress that further rate hikes could happen if inflation were to stay persistently high, well above the Fed’s 2% target rate.
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Kitco News/Anna Golubova
Ray Dalio: The U.S. and China are on ‘the brink of an economic resources war’
The U.S. and China are on the brink of war, billionaire and Bridgewater’s founder Ray Dalio warned in a letter he penned on LinkedIn.
“We are on the brink of an economic resources war,” the founder of the world’s largest hedge fund wrote last week.
And the two nations are beyond “the ability to talk,” he said.
Dalio pointed out that the two nations are close to a sanctions war and/or military war. And even though neither side wants a conflict, one is pretty probable. “A) each side is very close to the other’s red lines, b) each side is using brinksmanship to push the other at the risk of crossing each other’s red lines, and c) politics will probably cause more aggressive brinksmanship over the next 18 months,” Dalio wrote.
You can read the full article, here.