If the Federal Reserve doesn't do this, the U.S. economy and S&P 500 will have a hard landing.

The biggest reason to be hopeful that a recession caused by the Federal Reserve can be avoided next year was just taken away. In September and October, hourly pay went up, and in November, it went up even more. This pushed wage growth far above the range that is in line with the Fed's 2% inflation target.

Nearly everyone agrees that the Fed needs to raise its inflation target, at least in practice, if the U.S. economy is to avoid a hard landing and a bigger drop for the S&P 500. The Fed might be willing to do this, but the economy would still need to cool down more before they stop raising interest rates.

"The 2% inflation target is a lot more flexible than the Fed lets on," RSM chief economist Joe Brusuelas told IBD. "I don't think there's any constituency out there for the bloodletting that would be necessary."

Brusuelas thinks that for inflation to return to 2%, the Fed would have to raise unemployment to 6.7%. But most of the way to 3% inflation could be reached with a much smaller rise in unemployment to 4.6%, which would still cost 1.7 million jobs.

"If the Fed is dead set on getting inflation to 2%, that could mean more rate hikes and a higher end rate than what is already baked into the cake," said Joe Quinlan, head of market strategy for Merrill and Bank of America Private Bank. "It might be too much tightening of the money supply," which would cause a sharp drop in the U.S. economy and earnings.

But Quinlan also thinks there is a chance of a better outcome. If inflation keeps going down toward 3% and Fed policymakers "take their time" instead of rushing things, he thinks the markets will go up.

"I wouldn't be surprised if, in maybe two years, the new Fed inflation target is something like 3% to 3.5%. That is definitely a possibility, and everyone agrees that it would be fine."

Comments

Accumulate Wealth: Strategies for Effective Financial Resource Management

In today's ever-changing business landscape, the skillful management of financial resources stands as a paramount concern for organizations striving to prosper and achieve success. Financial resources serve as the lifeblood of any enterprise, empowering them to invest, operate, and grow. This comprehensive article delves deep into the concept of Financial Resources, shedding light on what they are and offering insights into effective management strategies. While the keyword " where to accumulate wealth " is relevant to financial planning, this article primarily focuses on the broader concept of financial resources and their management within the business context. Understanding Financial Resources Financial resources encompass the funds and assets that an organization employs to finance its operations, projects, and investments. These resources exist in various forms, including cash, accounts receivable, investments, and more. Managing these resources effectively can ma...

Maximizing Financial Support for Graduate Students

In our pursuit of comprehensive financial support for graduate students, we've identified key strategies and resources to help you secure the funding you need to thrive academically. Whether you are already in graduate school or planning to embark on this journey, we understand the importance of accessing additional financial support. In this guide, we will explore various avenues that can significantly enhance your financial resources and help you achieve your educational and career goals, with a specific focus on " Financial Support for Graduate Students. " Additionally, we recognize the significance of " private student loans for international students in the USA " as an essential topic for a broader audience seeking relevant information. Scholarships and Grants 1.1. Academic Excellence Scholarships If you're excelling in your academic pursuits, there are numerous scholarships available. These scholarships recognize and reward outstanding students who h...

Search This Blog