FSU economist sees economic slowdown as ‘best-case scenario’
Published: June 15, 2022
A recession likely looms from the Federal Reserve’s attempts to control inflation through interest-rate increases, according to Florida State University economics professor Randall G. Holcombe, Ph.D.
“The best-case scenario would be an economic slowdown,” said Holcombe, the DeVoe L. Moore Professor of Economics. “Economic growth would slow, with minimal effects on unemployment. Even so, expect the unemployment rate to increase. The worst-case scenario would be a major recession.”
The Fed moved Wednesday to increase its federal funds rate — the rate at which banks borrow and lend to one another overnight — 0.75 percentage point to a target range of 1.50%-1.75%. It marked the third rate increase this year from the central bank, which hadn’t previously raised rates since 2018, and the largest increase since 1994.
Like other economists, Holcombe suggests the Fed has little choice but to raise interest rates as inflation continues to soar and force Americans to spend more of their money on necessities such as food and gasoline.
He adds: “The last time inflation got out of hand, requiring strong policies to control it, was in the early 1980s, and one consequence was a major recession. That could happen again.”
News organizations can reach Holcombe at email@example.com.