Americans are about to start losing their jobs — and that will spoil the Fed's dream no-recession scenario, Vanguard top economist says


According to Joe Davis, Vanguard's top economist, the Federal Reserve's dream of avoiding a recession may be hindered by upcoming job losses in the United States. Many banks predict that unemployment will exceed 4% within the next year as the effects of the central bank's aggressive interest-rate hikes ripple through the labor market. 

Davis believes that while these job losses may help lower inflation to the Fed's target of 2%, they could also prevent a "soft landing," where prices stabilize without an accompanying recession. To achieve the desired 2% inflation rate, Davis suggests that labor market weakness, resulting in at least a 30 to 40 basis point increase in the unemployment rate, may be necessary. He notes that historically, such an increase has always coincided with a recession, albeit not necessarily a deep one.

These remarks by Davis come after the Fed publicly stated that it does not anticipate a recession in the US this year. Davis argues that, based on the definition of a recession and the presence of even minimal job losses, the current situation could indeed be classified as a recession. 

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