The US economy appears to be heading for a hard landing. After months of ignoring the growing problem, the Federal Reserve is using brutal monetary force to rein in rising prices.
Fed policymakers have effectively decided that inflation is so out of control. They are ready to induce an economic downturn which will reduce the overall demand for goods and services.
The recent carnage in the stock market suggests that the Fed’s sudden and aggressive rate hikes will squeeze consumer borrowing and hurt .
Equities, which are now fully in bearish territory, tend to lead the economy. The market message is that a recession is coming.
Claims to the contrary by Biden administration officials are far from convincing — especially given their failure to acknowledge the inflation problem until it became too overwhelming to deny.
Treasury Secretary Janet Yellen took to ABC News on Sunday to paint a rosy picture of the deteriorating economy. She says,
“I don’t think a recession is inevitable”
Maybe nothing is inevitable except death and taxes. But the latest economic indicators suggest another recession caused by clumsy central planners is also inevitable.
Bidenomics relied on fiscal and monetary stimulus supporting consumer demand.
At the same time, the Biden administration has taken steps to cut off the supply of critical commodities like fossil fuels — going so far as to halt pipeline projects and demand that oil companies stop investing in new ones. sources of domestic production and then demonize them. for not doing enough to mitigate record fuel prices.
Today, the economy must deal with imbalances of supply and demand. The housing market faces a toll after the fastest rise in mortgage rates since 1987.
Sellers are forced to negotiate prices so that buyers can pay the monthly installments. Meanwhile, housing starts, home building permits and mortgage applications are falling rapidly.
Signs of danger for the economy
- The Federal Reserve Bank of Atlanta’s GDPNow tracker shows economic growth at 0% this spring, down from previous projections for second-quarter GDP gains.
- The business index turned negative in June, the first such contraction since the depths of the COVID lockdowns.
- The social mood is plummeting, with the latest Consumer University showing consumer sentiment plunging to an all-time low.
- A recent investigation found that small business owners “feel the gloomiest in nearly five decades.”
- And finally, 59% of US manufacturers now believe a recession is approaching.
The result is that periods of great fear create great buying opportunities. Asset classes currently under pressure will eventually bottom out. Some markets may be at or near a low now.
But with the economy likely to get worse before it gets better, risks remain elevated in economically sensitive assets such as growth stocks and industrial commodities.
Non-cyclical assets such as precious metals tend to be more resilient to economic risks. They may even benefit from an investor flight to safety – especially as it becomes more apparent that cash is not a safe haven in an environment of stagflation.
Holders of certain hard assets, namely and , will be better positioned than those locked into paper assets to survive a hard landing in the economy.