Atlanta, Georgia, Aug. 31, 2022 (GLOBE NEWSWIRE) -- ATLANTA – Curing inflation will be a year and a half process, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business, because a “very determined” Federal Reserve will “eliminate excess demand by hiking interest rates sufficiently.” 

In his economic forecast for the nation, released today (Aug. 31), Dhawan described the current economic condition as “bearflation,” which he defined as “a combination of hot inflation, accompanied by sharp stock market declines at near full-employment, in the face of an energy crisis that is eroding consumer confidence, thereby making corporations hesitant to invest in capital expenditures (CapEx) – which will turn the current stall in income growth into an NBER (National Bureau of Economic Research) style recession as the Fed remains resolute with interest rate hikes.”

Although prices at the pump have declined, natural gas prices remain high. “In the U.S., natural gas costs three times what it did two years ago. In Europe, it’s 7-10 times higher over the same period. This energy shock reverberating through the European economy, a critical U.S. trading partner, will translate into a nasty slowdown for the continent this coming winter,” said Dhawan.

The energy-price-hike-induced inflation has cratered domestic consumer confidence, signaling less spending in the coming months. As a result, corporate suite confidence is low, translating into weak capital expenditures in the last six months.

“An important bellwether of future growth is technology-based investments by corporations,” Dhawan said, “with CFO (chief financial officer) confidence plummeting, expect to see even less spending on technology equipment and software (aka CapEx), which is the lifeblood of job growth. CapEx spending done today generates job growth six to nine months down the road. CapEx spending will cool even further, and so will job growth, in 2023.”

Dhawan said the U.S. is not facing a repeat of the multi-year inflation it endured in the 1970s.

“Fed Chair Jerome Powell signaled his firm commitment to quashing inflation this past Friday (Aug. 26) in his remarks at the Kansas City Fed’s annual conference in Jackson, Wyoming,” Dhawan said, adding, “I anticipate three more rate hikes totaling 125 basis points at upcoming Federal Reserve meetings in 2022, and with quantitative tightening ramping up in September, it will be enough of a monetary tightening to cure the inflation problem.” 

As for when the Fed will stop raising rates, Dhawan said, “when the Fed has seen the whites of the eyes of the recession, meaning job growth has become decidedly negative, rate cuts will begin, around the fall of 2023.”

Highlights from Rajeev Dhawan’s National Economic Forecast

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