Amir Kahanovich (Photo by Inbal Marmari)
“Even if inflation today comes mostly from supply-side disruptions, it still does not mean that it can not be addressed by cooling the demand-side, and indeed, there are growing estimates that the Fed not only is not afraid of recession but has consciously decided to go for a ‘controlled recession,” Phoenix chief economist said yesterday. , Amir Kahanovich.
According to Deutsche Bank, the Fed intends to put the U.S. economy in a controlled two-quarter recession as early as the second half of 2023. Similar estimates are forming in the strategy departments of other banks, including Goldman Sachs. The spiral of inflation, for example through the release of bottlenecks in the manufacturing and transportation industries. “
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“Even during the recession, it is expected to sharply lower interest rates as early as the end of 2023 to ensure exit in the second half of 2024, in the hope of no structural damage. It is currently estimated that it will avoid an annual recession in 2023 or 2024, but the market does not believe Inflation, for which expectations remain high. ” Says Kahanovich.
A “reset” strategy can be complicated, if, for example, interest rate hikes are exposed in bubbles in one of the industries (the technology industry shows signs of pressure), if the economy finds it difficult to recover from this slump (for example, if the unemployment rate declines).
Not only the banks, but also the bond market embodies that the Fed will be able to put the US economy in recession as early as the end of 2023 and by the way the European economy in early 2024, but despite this inflation expectations are still high and stable. ” The theory was reinforced yesterday by the Fed’s deputy chairman, Liel Brainard, who said that curbing inflation was “extremely important”, adding that the central bank could begin to cut its balance sheet quickly as early as next month.
“Inflation engines continue to expand – commodity prices continue to rise despite growing pressure to raise interest rates, currently mainly due to the effects of the war in Ukraine. The storage facilities of the Russian Gazprom (in its territory) In addition, the US sanctions on Russia were extended to a total ban on investment.
“At this time the good-hearted Saudi announced the increase in oil prices to its customers. In light of the expansion of the number of inflation engines it is difficult to put a finger on the number of interest rate hikes the Fed will have to implement as long as it curbs inflation at any cost. , May be blatantly out of date.
In the meantime, the Ministry of Finance has announced a reduction in the excise tax on fuel by half a shekel, in the meantime for three months. “According to our calculations, the move will decrease from the April index by two tenths of a percent, meaning that from a monthly index forecast of 0.9 we reduced it to 0.7, but without changing the 12-month forecast that remains at 3.4%. Israel.
“The current government is very narrow and already this morning there are doubts about its stability with the retirement of coalition chairman Idit Silman, and will probably have a hard time surviving in the event of a significant social protest related to the cost of living or a central bank recession. Consumer prices and therefore tax reduction measures may even be in some constellation cheaper than combined inflation and significant interest rate hikes.
“As long as the government survives and manages to regain the majority, we expect to see further measures by the Treasury in an attempt to lower prices, including increasing pressure to reduce tariffs and open up imports. But even paralysis of government activity may cool inflation, but this time through cooling public demand.” Kahanovich concludes.
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