Luke Ellis (CEO of Man Group Hedge Fund) recently shared his views on how a recession in the USA is now evitable as the Fed is raising interest rates in an attempt to curb inflation. The Federal Reserve is trying its best to bring inflation around the 2% range, and the only tool in its arsenal is to raise the interest rates.
In the USA, inflation peaked during June at 9.1%, but due to the measures taken by the Fed, it is around 8.5% now. So in a sense, inflation is indeed slowing down but it is still a long way from the Fed's target of 2%.
However, there's also another side to this story of raising interest rates in the USA... What the Fed is trying to achieve is to dampen the demand without working on improving the supply side. This is, in turn, decreasing consumer spending and giving the illusion that inflation is slowing down.
As a result, the USA is now at risk of inflation if the Fed doesn't deviate from its path of raising interest rates. If we look at the Fed's future guidance, it has signaled a slowdown in the pace of rate hikes, but there was no talk of lowering the interest rates.
So by looking at the current situation, it seems that the recession in the USA is now a reality that is only a little far in the future.
That's why Ellis has also shared his views on this whole ordeal... According to Ellis, the inflation in the USA will be around 3.5% - 4% during next year, which will be enough of an excuse for the Fed to stop its rate hikes.
However, it will be a little too late even if the Fed takes its foot off the accelerator as the recession has already become inevitable.
The views shared by Ellis are actually similar to the ones shared by the CEO of JPMorgan Chase & Co as well. The CEO of JPMorgan Chase said that the US economy will face a recession as we approach the mid of 2023.