Some analysts still believe that the United States will inevitably face grave problems. However, almost all gloomy forecasts, including a default, recession, and a slump in the US dollar, have not come true yet. Meanwhile, inflation may once again reach extremely high levels, causing a collapse in the country’s economy.
There is an assumption that US inflation will spiral out of control after a decline. However, the Federal Reserve is doing its utmost to prevent a catastrophe. Although its actions are not always immediate, they are effective.
“Even if the Fed had responded much faster, we would have had the most severe inflation outbreak since the 1970s,” David Wilcox, Bloomberg’s director of US economic research, wrote. “To head off the inflation problem altogether, according to the model, the Fed would have had to put the economy through a very sharp recession.”
According to the upshot of simulations using a new Bloomberg Economics model, even if the Federal Reserve had begun raising interest rates in the second quarter of 2021 instead of the first quarter of 2022, in the first quarter of this year, the consumer price index would have been 5.9% higher than in the same period of 2022. Notably, an earlier monetary policy tightening might have affected the situation in 2022. Thus, inflation would have peaked around 7.6% in the third quarter of last year instead of 8.6% in the second quarter.
“That’s not a trivial difference — but not a game changer either,” Wilcox said. He also added that the model’s predictions for inflation under the alternative “liftoff” scenario more or less matched Bloomberg Economics forecasts for inflation through the end of 2025.
