One recession indicator isn’t flashing warning signs yet


As the Federal Reserve gears up for another mega-sized interest rate hike to help cool the economy, one reliable indicator from the Fed is pointing to ongoing resilience among corporate profits, suggesting there’s still room for the economy to unwind further before it falls into a recession.

US dollar illustration
Fed officials have remained steadfast in their commitment to lower inflation. | Photo by Alfred Gescheidt/Getty Images

Fed officials are slated to announce how big the next interest rate hike will be at the conclusion of their upcoming two-day policy meeting on Wednesday. Comerica Bank forecasts the Fed will authorize another 75-basis-point hike in November, followed by a half-point in December and a quarter-point in February—putting the Fed funds target at a “very restrictive” range of 4.5% to 4.75%. Others are more hawkish: In a weekend note, Goldman Sachs chief economist Jan Hatzius said the Fed will act more aggressively, hiking past its February meeting to a top rate of 5%. That would be the highest rate in 15 years.

With prolonged inflation forcing central banks to hike interest rates aggressively this year, pockets of the economy have started to suffer immensely—particularly the housing and stock markets. A growing number of economists are worried additional rate hikes could further tank the economy, but Fed officials have remained steadfast in their commitment to lower inflation—even if it means risking a recession. In meeting minutes last month, the Fed said additional hikes would help prevent the “far greater economic pain” associated with high inflation and added that the cost of taking too little action “likely” outweighs the cost of taking too much.

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Further Reading

Consumer Prices Rose Even Faster Last Month—Here’s What That Means For The Next Interest Rate Hikes (Forbes)

Economy Survives Technical Recession—But Worst Could Come Next Year, Experts Warn (Forbes)