# Can the Fed Rein in Inflation Before a Recession? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-06-02 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Will Rising Prices Lead to a Recession? Expert Insights Meta Description: Americans are concerned as prices soar and interest rates rise. Find out what experts say about the potential for a recession in late 2022 or early 2023. URL: https://financedigest.com/can-the-fed-rein-in-inflation-before-a-recessionhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1356239664-1736815666617-compressed.jpg) Americans are becoming increasingly worried about the possibility of a recession following rising prices for consumer goods and gasoline. In an attempt to cool the economy, the Fed recently began raising interest rates, but consumers are continuing to spend their money despite increased costs. Over the following months, we will see whether raising interest rates will have the desired impact or whether a recession will occur. ## **What Is a Recession?** A recession happens when there is a [continuous decline in GDP over at least two quarters](https://www.financedigest.com/impact-com-announces-continued-growth-in-first-quarter-of-2022.html "impact.com Announces Continued Growth in First Quarter of 2022"). For a recession to occur, a significant decline in economic [activity would need to happen](https://www.financedigest.com/what-happens-if-a-company-doesnt-have-any-records-of-its-rd-activities.html "What happens if a company doesn’t have any records of its R&D activities?"). With a [jobs market](https://www.financedigest.com/global-share-markets-rise-bonds-fall-on-u-s-jobs-data.html "Global share markets rise, bonds fall on U.S. jobs data") that remains hot, it’s possible that the U.S. will [avoid a recession](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says"). However, the economy must [remain as close](https://www.financedigest.com/power-generation-sector-to-remain-largest-end-user-of-industrial-engines-persistence-market-research.html "Double Acting Hydraulic Cylinders to Hold Close to 50% Market Share: Persistence Market Research") to full employment as possible. The Fed must also be cautious in how it raises [interest rates](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc"). If it moves too quickly, there may be a [decline in the labor sector](https://www.financedigest.com/decline-in-german-services-sector-eases-raising-hopes-for-milder-recession-pmi.html "Decline in German services sector eases, raising hopes for milder recession -PMI"), leading to a full-blown recession. To prevent a recession, the [Fed needs to perform a delicate balancing act](https://www.financedigest.com/fed-keen-to-be-well-positioned-to-act-on-inflation-other-risks-minutes-show.html "Fed keen to be ‘well positioned’ to act on inflation, other risks, minutes show"). ## **What Do the Experts Say?** According to Nick Tell, CEO of the leading asset management firm Armory Group, a recession may be inevitable and might occur in late 2022 or early 2023. As he explains, “Supply [chain](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments") bottlenecks continue in Asia. Crude and gasoline pricing has regained strength after some relief last month, which helped inflation numbers last month, but that is now reversed: wage pressure continues to mount, and [food inflation will accelerate with a potential worldwide grain shortage](https://www.financedigest.com/we-are-going-to-die-food-shortages-add-to-sri-lankas-woes.html "‘We are going to die’: Food shortages add to Sri Lanka’s woes") due to the war in Ukraine, drought in the midwestern U.S., and [extreme weather](https://www.financedigest.com/tips-for-preparing-your-car-and-home-for-extreme-weather-conditions.html "Tips for Preparing Your Car and Home for Extreme Weather Conditions") in Canada.” He continues, “The only solution I see is for the [Fed to accelerate rate](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") increases until consumer demand is reduced enough to fit the reduced supply currently in the economy.” While Americans are currently experiencing sticker shock from [increased gas prices](https://www.financedigest.com/taylor-wimpey-espana-remain-cautiously-optimistic-as-average-selling-price-increases-by-20-4.html "Taylor Wimpey España ‘remain cautiously optimistic’ as average selling price increases by 20.4%"), rising home costs, and more expensive groceries, this may only be the beginning. The [prices for basic goods will continue to increase until Americans begin](https://www.financedigest.com/explainer-the-g7s-price-cap-on-russian-oil-begins-to-take-shape.html "Explainer-The G7’s price cap on Russian oil begins to take shape") to stop spending and opt for cheaper alternatives. As Nick Tell says, “Demand needs to be reduced so that the [economy](https://www.financedigest.com/turkeys-economy-grew-7-6-in-q2-driven-by-domestic-demand-exports.html "Turkey’s economy grew 7.6% in Q2 driven by domestic demand, exports") can regain equilibrium with all the limitations that currently exist on the supply side.” [Miesha Williams](https://finance.yahoo.com/news/recession-coming-u-heres-experts-140358823.html), the program director for economics at Morehouse College, believes that we won’t know of a recession until we are already in it. She contends that the [country will be in a recession when housing becomes a more serious issue](https://www.financedigest.com/imf-should-issue-new-reserves-to-help-countries-tackle-overlapping-crises-groups.html "IMF should issue new reserves to help countries tackle overlapping crises – groups") than it already is. Households may be unable to afford their rent, and the resulting losses to landlords will become visibly apparent. If people become afraid to [spend their money](https://www.financedigest.com/student-finances-exposed-how-do-they-really-spend-their-money.html "Student finances exposed: How do they really spend their money?") for longer than four months, then the recession will have begun. [Dedrick Asante-Muhammad](https://finance.yahoo.com/news/recession-coming-u-heres-experts-140358823.html) believes that consumer uncertainty and concerns about rising prices may also be a byproduct of the continuing COVID-19 pandemic. During the shorter recession that played out in March 2020, households didn’t feel as much of an impact because there were significant government interventions and programs that were [made available](https://www.financedigest.com/lyme-disease-treatment-market-forecast-to-2031-made-available-by-top-research-firm.html "Lyme Disease Treatment Market Forecast to 2031 Made Available by Top Research Firm") to people who were out of work or had reduced incomes. ## **What Should Investors and Citizens Do to Prepare for a Recession?** According to Christelle Khalaf, the best option for investors is to save as much as possible. This [creates a buffer in case of job](https://www.financedigest.com/italy-jan-jobless-rate-edges-up-to-7-9-with-35000-jobs-created.html "Italy Jan jobless rate edges up to 7.9%, with 35,000 jobs created") loss and prevents losses in the stock market. Nick Tell advises that [investors who are seeking to continue earning a return should consider senior secured floating rate](https://www.financedigest.com/uk-stocks-slip-as-rate-hike-worries-grip-investors.html "UK stocks slip as rate hike worries grip investors") loans. BB high-yield [bonds may act as a defensive high yield](https://www.financedigest.com/euro-zone-bond-yields-rise-after-u-s-jobs-data.html "Euro zone bond yields rise after U.S. jobs data") strategy. **Contributed Article** --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---