More than a year ago, I forecast a recession would begin in the second half of 2023. That was a no-brainer. Years of virtually zero interest rates ignited stock markets, bond markets, and housing bubbles. To deal with the spike in the inflation rate to 9% in June 2022, the Federal Reserve began to increase the Fed funds rate–the rate banks lend to each other overnight–expecting to cool demand for goods and services and thus bring the rate of inflation down to its target rate of 2%.
With inflation increasing at the fastest pace in more than 40 years, the Fed had to act to deal with the pain families were feeling as wage increases lagged the rise in the cost of living. In short, the wage-price spiral is a myth. More accurately, a price-wage spiral unfolds during inflationary cycles.