Investing.com – The new Federal Reserve chairman may soon be facing an old quandary– how to raise interest rates to counter rising prices without triggering a recession.
Jerome Powell’s chances of success, however, are not good.
History shows that every recession since the early1970s has been preceded by a spike in energy prices and Fed rate hikes to contain the inflation that comes with it.
Oil prices soared in 1973, 1979, 1990, 1999 and in 2008, when crude hit a record high of almost $150 a barrel. In each case, the Fed raised interest rates 2.00% or more, and a recession followed.
This time around is slightly different. Some of the Fed’s six interest rate hikes since December 2015 came while oil prices were subdued. In mid 2017, however, prices began a sharp rebound that has accelerated in 2018.
Thus far, the Fed’s rate hikes total 1.50 percentage points. But with two — some say three — more quarter-point increases expected in 2018, the Fed will cross the 2.00% threshold sometime in the second half of this year. If oil prices, which are already up 20% this year, continue to rise, as many now predict, economists say a recession is likely, sooner if not later.
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Source: Investing.com
