Smith Experts React to Fed Recession Prediction

This is my commentary from the Smith Brain Trust:

David Kass, Clinical Professor of Finance, who formerly held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and Bureau of Economic Analysis)

I agree with the recent Fed forecast for a mild recession occurring in late 2023. The failures of Silicon Valley Bank and Signature Bank, and the likely increase of the Federal Funds rate by another 25 basis points to 5.00-5.25% at the next FOMC meeting on May 2-3 will result in sufficiently tight credit conditions so that a ‘soft landing’ is unlikely to occur. The Federal Reserve’s goal of 2% core PCE (personal consumption expenditure) inflation is not expected to be achieved until 2025 according to the March 22, 2023, economic projections of the Federal Reserve Board members and Federal Reserve Bank presidents. Core PCE inflation is projected to decline to only 3.6% by year-end 2023. In addition, every recession since World War II, prior to the recession resulting from the 2020 pandemic, was preceded by the Federal Reserve raising interest rates. The likely mild recession in late 2023 would be consistent with this track record. The current historically low unemployment rate of 3.5% is projected to increase to only 4.5% in late 2023 and then 4.6% in 2024 and 2025, before declining to 4.0% in the longer run, according to the Federal Reserve Board. This would be indicative of a mild recession.