To cool down the economy, then, the Fed will likely look to tame hourly wage growth and push the unemployment rate higher, JPMorgan said.
“By most measures hourly wage growth is currently running around 5%,” the analysts wrote. “That likely needs to run closer to 3.5% before policymakers can feel more comfortable about returning to 2% inflation. And that sort of wage growth deceleration will likely require an unemployment rate between 4% and 5%, depending on how entrenched wage growth expectations have become.”
The Fed’s tightening efforts, ultimately, will tip the economy into a recession, JPMorgan analysts said.
But since it’s not a secret or unexpected, the recession could be mild.
“If we do have a downturn next year, it will be the most well-telegraphed recession in modern memory. That fact alone should change the nature of the slowdown.”
