The Fed Has Stopped Talking About Recession: 3 Reasons That’s a Problem

As 2024 starts, there’s one thing on many Americans’ minds: will the US economy fall into recession or not? Especially after bank failures early in 2023, everyone waited with bated breath last year expecting the other shoe to drop, but it didn’t.

The mainstream media has picked up on the fact that the much awaited and much feared recession didn’t materialize last year, and has proclaimed that the Federal Reserve has been successful in avoiding a recession. But that’s likely premature.

Unfortunately, the Fed too seems to have forgotten about the possibility of recession, as the minutes of its last few monetary policy meetings have failed to mention the word. But if the Fed’s no longer talking about recession means that it thinks recession is no longer in the cards, that could be problematic. Here are three reasons why.

1. Could Miss Recession Cues

For one thing, the Fed could very well miss out on cues that the economy is heading into recession. This isn’t unusual, as Fed Chairman Ben Bernanke famously said in early 2008 that the US economy would stay out of recession, even though the economy actually entered recession in December 2007.

And remember the Fed’s views on inflation, in which we first were told that inflation wasn’t going to happen, then were told that inflation would be merely transitory, and then were told that inflation wasn’t going to be a problem. All the while inflation marched on up to over 9% year on year, the highest level in over 40 years.

Given that track record, it’s more likely than not that the Fed is going to miss signs that the economy is in recession, particularly if it believes right now that it has dodged that recession bullet. And that means that any Fed action to combat a recession is likely going to come too late to do anything to stave off a recession, and might instead make a recession worse.

2. Could Overreact to Recession

The 2008 financial crisis took the Fed by surprise, particularly given the Fed’s views circa early 2008. And the Fed’s reaction to the crisis was nothing short of phenomenal.

The Fed cut its target federal funds rate to zero, then held it there for years, an unprecedented step. Along with zero interest rates came monetary stimulus in the form of quantitative easing (QE), a bazooka of trillions of dollars of easy money into the financial system, yet another unprecedented step.

The Fed still hasn’t been able to return to any semblance of pre-crisis normalcy, as QE and low interest rates have set the road map for monetary policy up until the present day. And if the US economy falls into recession this year, don’t be surprised to see large interest rate cuts and massive QE back on the menu.

The Fed’s actions in 2020 more than doubled the size of its balance sheet and resulted in trillions of newly created dollars entering the financial system. That in turn saw inflation rise to its highest level in over 40 years.

If the Fed misreads the tea leaves and gets caught flat-footed, it could very overreact by cutting interest rates faster than it otherwise would have, and could once again open the floodgates of QE. And that could lead to a resurgence of inflation.

The rate of decline in the M2 money supply has tapered off recently, which raises some doubt about the Fed’s willingness and/or ability to combat inflation. If the Fed has prematurely declared victory over inflation too, that could come back to haunt it in the future.

3. Could End up Making Things Worse

The stagflation of the 1970s is something that no one alive today wants to see return. But Fed policy miscues could bring it back.

Inflation in the 1970s wasn’t persistently high. Instead, it yo-yoed up and down, with no seeming rhyme or reason. The uncertainty of where inflation would end up, coupled with inflation that reached into double digits, made the decade a miserable one for millions of people.

If the Fed today ends up recreating the same monetary policy of the 1970s Fed, jumping back and forth between tightening and loosening, it’s not inconceivable to see a return to a 1970s style stagflation.

The Fed has already let inflation get out of control once before, and it still hasn’t gotten inflation back to its 2% target. If the Fed tries to react to an oncoming recession by pushing interest rates down to zero again, or by pumping trillions more dollars into the financial system, we could see a return to the stagflationary roller coaster.

What Can You Do?

One of the core investment edicts on Wall Street is “Don’t fight the Fed.” It’s a statement that can have multiple meanings, but at its heart it means that, no matter how much you may want something to happen, the Fed’s monetary policy is going to be the driving factor behind what happens in markets.

Right now the Fed appears to be in the same place it was in 2007 and 2008, unaware of how dangerous the next recession will be and likely to cut rates into a recession. If the Fed follows its historical pattern, the first rate cut could be the one that comes right before the recession officially starts.

While Wall Street wants rate cuts and looser monetary policy, and thinks that that will stimulate the economy and send stocks and bonds booming, any upcoming rate cuts may in fact be the harbinger of recession. And this may be the time to start preparing yourself for that recession.

Many Americans have already started to protect themselves and their financial well-being by buying precious metals like gold and silver. Whether they’re looking to protect their retirement savings with a gold IRA or just looking to buy some silver and gold coins to hold at home as a hedge against financial calamity, gold and silver can play an important role in protecting their wealth.

If you’re worried about the outlook for the economy and don’t trust that the Fed will manage the soft landing that Wall Street thinks is possible, maybe it’s time to start thinking about gold and silver. With thousands of 5-star reviews and over $2 billion in precious metals placements, Goldco has significant experience helping people just like you benefit from owning precious metals.

Don’t let your hard-earned savings get decimated by a recession that many people can already see coming. Call Goldco today to learn more about how gold and silver can help play a role in securing your financial future.