Ex-Treasury Economist Warns of Big ‘Blow’ to US Economy After November’s CPI Report

Reacting to the fall in core inflation for a second straight month since a peak in September, the market panel on “Mornings With Maria” warned that the Federal Reserve could not foresee the “whiplash” and “bump” the recession could inflict on the US economy. .

David Beckworth, a former Treasury Department economist, said Tuesday: “It’s clear we’re going to be in a recession.” “It would be an incredible shock to the economy because the labor market is still doing relatively well. A really dramatic job loss would be a dramatic, dramatic change, and it would be a shock.”

Inflation fell more than expected in November, an early sign that sharply higher consumer prices are starting to ease their effects on the US economy.

The Labor Department said Tuesday that the consumer price index, a broad measure of the cost of everyday goods that includes gasoline, groceries and rent, rose 0.1 percent in November from a month earlier. Prices increased by 7.1% per year.

INFLATION FALLS MORE THAN EXPECTED TO 7.1% IN NOVEMBER, BUT CONSUMER PRICES REMAIN HIGH.

The readings were below Refinitiv economists’ headline reading of 7.3% and the 0.3% monthly growth forecast, a potentially reassuring sign. Federal Reserve as it tries to tame runaway inflation with a series of aggressive interest rate hikes. This marked the lowest annual inflation rate since December 2021.

But Beckworth, along with contributor Liz Peake and billionaire CEO John Catsimatidis, cautioned that the Fed will act based on what it sees in the rearview mirror instead of looking at the likelihood of a recession next year.

“I think the Fed has focused on the services part of the index, which is important, but it’s important to note that it tends to lag the rest of the economy,” Beckworth said. “The Fed may be looking in the rearview mirror when they’re setting rates, and it may take a bump in the road and not see it coming, and it could be a recession. So I’m concerned that the Fed is not that forward-looking. bo ‘could be, and that’s what I think the market is telling us [about] today’s decade’s harvest.”

“I don’t think we know what the outcome of this big tightening cycle is going to be. Those periods have always been associated with very deep recessions, and I think all of us who watch this material will turn around,” agreed Peek. “From tracking inflation [and] Watching the Fed, watching job losses and watching earnings, because I don’t think analysts are being realistic at all about what earnings are going to be next year. I think investors should focus on the impact of Fed tightening, which we haven’t seen yet.”

While the Fed is expected to announce a 50 basis point hike after its last meeting of the year on Wednesday, Catsimatidis called for a “pause” to allow markets to “regulate themselves”. confirmed.

“When energy prices doubled, it caused everything else to go up – transportation costs for food, heating oil for buildings, rents are now high because we’re also in the real estate business,” Katsimatidis said. explained. “So my advice to Jay Powell is to take a break. Don’t continue to raise interest rates and cause another real estate crisis across the country.”

Gristedes, D’Agonisto and the head of United Refining Company also called on the Biden administration to unlock the full potential of the US oil supply.

“If Joe Biden opens up North America, my next prediction is $55 a barrel, and that could happen,” Catsimatidis said.

FED to keep interest rates high for next year, recession likely: poll

As the Federal Reserve focuses on goods and services, the panel warned that the Fed’s missing piece of the “puzzle” is the labor market and wages.

“Underneath all of this information, the one thing that has been going on and will continue to be is wages, demands for higher wages. We’re seeing that in union negotiations,” said Liz Peek. “The truth is, we haven’t seen what the union wage demands will be in relation to inflation over the last year… So going forward, everybody’s going to have to get more money to deal with the inflation they’ve been going through. wants. This. What the Fed will be struggling with next year.”

“Look at the labor market, it’s always been a puzzle this year. It’s still very strong and really solid,” Beckworth said. “On the other hand, we’re seeing real income … falling.”

Rep. Jason Smith, R-Mo., called out “reckless spending” by Democrats on the panel, saying fiscal bills like the bailout and the Detease Act have led to the highest inflation in 40 years.

“Inflation has gone up 14.3 percent since Joe Biden was sworn in. That’s almost two months’ pay for every working American, and that’s who’s feeling the pinch, who’s struggling,” Rep. Smith also said on the panel. . “In the 105 months before Joe Biden took office, real wages rose from 105 to 102 months. But they have fallen in the last 19 months of his administration. That’s because of his reckless economic policies.”

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When Republicans take control of the House of Representatives next year, Smith said, Democrats may be to blame for the recession in the GOP when it comes to Americans’ wallets.

“Look at the inflation crisis: Joe Biden refused to even believe inflation existed at first. Then he tried to blame it on COVID, and then on Putin. And then they finally faced the fact that inflation exists. That’s exactly what they’re doing here,” Smith said. “When you talk about rising food prices, it gets worse because the farmers I represent are paying 50% more for diesel, getting paid for those who work on their farms. It’s difficult.”

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Megan Henney of FOX Business contributed to this report.