The Fed Won't Stop Until It Gets Its Recession
The Federal Reserve wants a recession.
The way it looks at things it needs a recession.
And they’re not going to stop until they get it.
Here’s why.
A Wage Too Far
The Federal Reserve moves are some of the hardest things to predict for normal people.
That’s because normal people think, well, normally.
A normal thought would be, “A recession is bad and will lead to hardship and misery for millions. Therefore the Fed won’t voluntarily induce a recession.”
But the Fed is anything but normal.
That’s why they seem hellbent on creating a recession.
Because they are.
But it’s been a long time since they explained why they are doing it and many are hoping they’re going to lighten up.
And that could be costly.
Let’s go back to May 2022.
This was just as they were starting the most aggressive series of rate hikes in decades.
Jerome Powell, the Federal Reserve chairman, laid out his main focus and was widely mocked for it.
He said his goal was to, “Get wages down.”
On the surface, that came across like Bond villain-level thinking.
I mean, prices are soaring and consumers are getting crushed, and he thinks people are making too much money?
It sounded like madness.
But the key is there was a rationale to it.
Now, we’re not saying the right rationale. Or even a good rationale. Just a rationale.
With that in mind, we’d like to show you a chart that really shows his thinking here. And, as a result, when we can expect the rate hikes to turn into rate cuts.
The chart is from Bridgewater Associates, one of the largest and most successful hedge funds in history.
This chart is featured in this recent letter from Bridgewater Associates and shows the correlation between wages and inflation.
It also shows why Powell was and still is so focused on wages:
Rightly or wrongly, this is why Powell and the other Federal Reserve members see wages as the real problem in all this.
It’s why their focus is on smashing wages and expecting inflation to follow regardless of the obvious recession they’re going to create.
It may be right or wrong, but that’s their path.
That’s why this measure is so important to the Fed.
Watch the wages. If they keep rising, the Fed will follow them with more rate hikes and the current rally could turn down fast.
