The latest report on consumer prices by the U.S. Bureau of Labor Statistic showed the cost of things like food, fuel and used cars have increased significantly since last year and inflation remains high at 8.2%. On Tuesday’s edition of the Newell Normand Show, Guy Williams of Gulf Coast Bank and Trust told Newell that combination of high prices and sustained inflation will almost certainly prompt the Federal Reserve to implement consecutive interest rate hikes in the coming months. Those higher interest rates are meant to slow down the economy in attempts to bring inflation down. That’s also the basis for recession. Williams pointed out that Bloomberg’s “recession risk” forecast, which considers recession related factors to assess the likelihood of recession over the next year, is now at 100%.
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“Unfortunately for the rest of us, the saying is the Fed will raise rates until something breaks. Well, things are already starting to break, and the question is how many have to break before we’re at the end of this rate rising cycle,” said Williams.
Williams explained to Newell that some of the areas of the economy that have started to break include independent mortgage brokers accumulating home mortgages and then selling them to Fannie Mae. Williams said because of the sharp increase in interest rates this year, a growing number of businesses that accumulate car loans and then securitize them are unable to function because there are fewer companies willing to buy the old car loans. Williams also said “house flippers”, especially the amateurs, are disappearing. He told Newell that the idea of easily buying a house, selling it and make money may have been attractive and possible a few years ago, but higher costs and interest rates have made house flipping more of a reality on TV than it has in actual reality. Despite the some of the economic strains on certain industries, Williams told Newell there also signs of economic resilience.
“We really have a mixed economy right now. In a lot of ways, the economy is strong. The American consumer still has cash. American businesses are still strong, but reality seems to come and tomorrow seems to arrive for the techcompanies first. And we’re seeing significant layoffs at a lot of the tech
companies. So, people that you think would be immune from this like Meta, which is the name for Facebook, Google, these people are actually laying folks off,” Williams said.
Williams also mentioned lay-offs at Netflix, Tesla and Twitter. If those moves by major employers make people nervous, Williams said the Bloomberg economics model projections only serve to reinforce the concern of a looming recession.
