Your Weekend Reading: Is Jay Powell Winning His War on Inflation?
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The US economy has begun to stall in recent weeks, with hiring and inflation slowing and access to credit narrowing, the Federal Reserve said. For Chair Jay Powell, all is happening as intended. But will it stop in time to avoid a recession?
Photographer: Westend61
Another week, another stack of data showing Jerome Powell’s year-long campaign to cool the US economy may be working. The Fed Chair’s task now is to avoid overtightening. The economy looks to be stalling (by design) and there’s softening in the labor market as well as housing. Despite the unpleasantness in Silicon Valley last month, regional banks look like they'll come through the inflation fight in one piece (if earnings this week are any measure). But some may still be in for a tough time—and so too will the consumers and companies who rely on them for credit. Those credit conditions are worsening and profit margins are getting squeezed, perhaps enough to give the Fed room to pause its rate-hiking cycle after next month’s still-expected hike. But while inflation persists, several Fed officials said they support further interest rate rises to help crush sticky price pressures. The US economy, however, is like an aircraft carrier—it doesn’t stop on a dime. And that means if growth keeps slowing, that long-predicted recession might finally come to pass.
Nevertheless, there are some corners of the market where no one seems all that concerned. Big banks have benefited from worried customers leaving their smaller counterparts, and hedge funds are also notching wins. The biggest new funds are raising money at levels not seen since before the start of the pandemic. Four new firms are poised to eclipse $1 billion by year-end. So at least they have something to cheer about.