If it's not already here, a recession is clearly on the way. A recession is at least two consecutive quarters of a drop in GDP. Of course, GDP is composed of volume and price. It appears to me that volume is already in decline, but price is increasing at a rate that disguises the underlying recessionary trend.
The Fed's commitment here is strong, but the journey is nearly impossible in the short run. Consumer balance sheets are so strong and desires to consume so high that I seriously doubt that 10% interest rates would stop them. So, the slowing must come from somewhere else. Perhaps it will simply take the reverse effect of what kept the economy going during the pandemic - a wealth effect.
By driving rates higher, stock and bond markets have immediately responded with the worst combined drop since 1932. However, the other more important asset has yet to drop - real estate. Real estate is a backward looking asset class. As a result, it only drops when enough people are forced to sell and the lack of buyers reveals a new set of appraised values. With the lock in long term rates at such low levels, it is unlikely that the recent purchasers are going to be selling.
So, if the reverse of the wealth effect - call it the poverty effect - needs to occur before the economy really slows down, the Fed will be in hiking mode for some time here - barring a "break" like occurred recently the British pension schemes.
