Unemployment to soar, recession to hit if Fed keeps raising rates, economist warns

Editor’s note: Retired NC State economist Dr. Michael Walden is an economist and regular contributor to WRAL TechWire which asked him for his assessment of the latest inflation data released Friday. He sounded grim warnings.

“The various measures of inflation are all saying the same thing – inflation continues to be uncomfortably high, and it doesn’t look like inflation will return to an “acceptable level’ – such as 2% – anytime soon,” Walden said.

“This means the Federal Reserve will continue to raise interest rates several more times, with the upcoming rate hike likely being another 0.75 percentage point rise.”

The Fed meets next week.

“More rate hikes will lead to more slowing in the economy, with the ultimate outcome likely being an ‘official’ recession sometime in 2023,” Walden added. He has argued that the US is not in a recession, citing an increasing GDP and strong employment.

Inflation keeps rising; fed could raise interest rates again

Big jump in unemployment ahead?

“Recessions often lead to reductions in employment, which add more challenges to household budgets already impacted by prices rising more than salaries. While some economists think we will have a “unique” recession that avoids job cuts, I think this is too optimistic of a view,” he warned.

“I forecast the unemployment rate will ultimately increase to 5% or 5.5% from its current level of around 3.5%.

There are currently 5.8 million unemployed, federal data shows.

The last time the unemployment rate was at 5% was in August 2021, according to the Bureau of Labor Statistics via Data Commons.

Walden is not alone in warning about job losses.

The economy will start losing 175,000 jobs a month, Bank of America warned recently.

Economy to start losing 175,000 jobs a month, Bank of America warns

Less inflation vs. fewer jobs

“A 5% jobless rate is still relatively low – especially for a recession – but that is little solace for individuals who lose their jobs,” Walden added.

“This forecast could turn out to be wrong if the Fed decides to abandon its 2% inflation goal and settle for something higher, like 4% or 5%. If unemployment rises as a result of the Fed’s rate hike, the Fed will likely come under pressure from some groups to back off and accept a higher inflation goal. This could leave us with a lower unemployment rate but a higher inflation rate.

“If unemployment reaches that level, that’s why there will be push-back.

“The next three to four months will be crucial to the outcome in the efforts to reduce the inflation rate.”

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button