FX.co ★ US at rising risk of recession

While the US government continues to struggle with worsening inflation, its economy is increasingly at risk of falling into a serious recession.

According to recent studies, most analysts expect the United States to face another large-scale economic crisis. For instance, Steve Hanke, a professor of applied economics at Johns Hopkins University, warns that there is an 80% chance of the US economy sliding into a recession in the foreseeable future. “The reason for that is because the Fed exploded the money supply, starting early 2020 at an unprecedented rate and they don’t want this length to be visible between the money supply and inflation,” Hanke said.

The economist criticized the US Federal Reserve for “searching for inflation and the causes of inflation in all the wrong places.” He also blamed the regulator for its failure to notice the effect of large amounts of stimulus and liquidity aimed at keeping the US economy afloat during the coronavirus pandemic. According to Hanke, the Fed was mistaken in purchasing government and corporate bonds in the open market in order to increase their value and reduce yields serving as a benchmark for all debt instruments. Now it is necessary to start the reverse process and unleash a wave of quantitative tightening, he assumes.