Big clue to the next recession: It’s likely to occur when the Federal Reserve tries to tame inflation.
Predicting when the next recession will hit is as much art as science. Economists, financial analysts, bloggers—frankly, all those who have an incentive being the first to call a recession—are at risk at having their judgment affected by these incentives.
An analysis of post-World War II recessions and their causes, studied after the fact, indicate that certain changes in monetary policy in the form of interest rate changes ordered by the Federal Reserve are the best way to predict a recession. When the Federal Reserve is concerned that inflation is rising, it raises interest rates as a way to slow down economic activity and half inflation. There is a tendency by the Fed to overshoot this attempt at stopping inflation, which leads to recession.
The good news is that the Federal Reserve does not see inflation as a threat at the moment, which means they won’t try to stop it by raising interest rates and thus will avoid overshooting and causing a recession.
Learn more about Mike Periu
Mike works with small businesses to teach them about finance and management. He started Proximo, LLC, a company that offers small business education and training services focused on finance and technology.
Periu also writes for OpenForum, Yahoo! Finanzas the Huffington Post contributor.
Mike went to Georgetown University where he studied Finance and International Business. He also serves on the Board of the Council for Economic Education and was a Fellow at the Kauffman Foundation.
