This is the Daily Article podcast for Thursday, June 16th, 2022.

Today's daily article was written by Dr. Jim Denison.

The Federal Reserve raised its benchmark interest rate by three quarters of a percentage point yesterday,

the biggest hike since 1994.

As a result, many are asking if a recession is likely

or even imminent. I'm certainly not an economist, but I can tell you what economists are saying,

as reported by the Associated Press. First, how would Fed rate hikes weaken the economy?

Higher loan rates will slow spending in areas that require consumers to borrow, such as housing,

cars, appliances, and furniture. Since the economy depends on consumer spending, a slowdown

in spending on major items can lead to a recession.

Second, how do rate hikes affect the larger economy? As borrowing costs increase, businesses

could pull back on buying new equipment or expanding capacity

and could slow hiring or even begin layoffs. Consumers would then pull back further on spending,

which exacerbates the economic slowdown. As perhaps a sign of the Times, the Wall Street

Journal reports that retail sales did in fact decline last month, as consumers reduced car

purchases and online shopping while spending more at gasoline

stations. Third, how does a sinking stock market affect the larger economy? Falling stock prices

affect affluent households, which hold the bulk of America's stock wealth, deterring spending

on vacation travel, home renovations, and new appliances. Falling share prices also tend to discourage corporations

from expanding. Wage growth would then slow, leaving Americans with less purchasing power. As they

spend less, the economy slows more, leading to further cutbacks and layoffs, which leads to even

less spending, which hurts the economy even more. Fourth, what are the signs of an impending recession?

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