Q. WOULD THAT SLOW THE ECONOMY OR POTENTIALLY CAUSE A RECESSION?
A. There’s two scenarios for the Fed. The most likely one is that our unemployment rate is quite low in 2022. Inflation is running above trend.
And so the choice is very easy. They’ve achieved roughly their maximum employment mandate. They raise rates.
The bad scenario for the Fed would be the unemployment rate remains elevated and inflation is running at 3% and then their dual mandate will be pulling them in different directions. And I’m not sure how they would resolve that.