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Expect 4% inflation by 2023 as the Fed hikes rates; These assets are recession-proof - Peter Berezin

Kitco News

(Kitco News) - The Federal Reserve hiked its key interest rate by 75 bps on Wednesday, and Chairman Jerome Powell did not rule out even more aggressive rate hikes in the future. Powell also said that the U.S. economy is not currently in a recession, mainly due to strong employment figures.

"I think [Powell] is right," said Peter Berezin, Chief Global Strategist at BCA Research. "And if you look at consumers, they're still spending, despite the fact real wages are shrinking. Now it's quite likely that inflation will come down over the next twelve months. Maybe it doesn't go from 9 to 2 percent, but it would probably go from 9 to at least 4 percent."

Berezin spoke with David Lin, Anchor and Producer at Kitco News.

Who defines a recession?

Whether or not the U.S. is in a recession has become a politically charged topic. Recent Commerce Department data suggest the U.S. economy has experienced two quarters of negative GDP growth, the standard definition of a recession. This is a definition that Biden's economic advisor Brian Deese endorsed in 2008. However, Deese recently said that other factors must be considered before declaring a recession.

"A recession in the U.S. is anything the National Bureau of Economic Research deems it to be," Berezin said. "The reality right now is that some measures of economic activity are pointing to a recession, while others are not. In particular, the labor market, which often weakens during a recession, has not yet begun to weaken."

The latest figures show an unemployment rate of 3.6 percent in June, which is considered low for the U.S. economy.

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Inflation and Fed policy

The Fed aims for an inflation rate around 2 percent. The latest data from June show an inflation rate of 9.1 percent.

Berezin said that the Fed will try to get inflation down, but that it would require a reduction in economic growth.

"Some of these supply-side bottlenecks… will dissipate over time and that will help reduce inflation," he said. "Will inflation fall all the way to 2 percent without any increase in the unemployment rate? That's less certain. So, I'm not saying that we're going to avoid a recession. I think we'll avoid one for the next twelve months, but ultimately it might take some economic pain to bring inflation back down to 2 percent."

He added that at the next FOMC meeting, the Fed will hike rates by "50 basis points, and then maybe do 25 basis points, and then just wait to see how the economy responds, because as the old economic adage goes, monetary policy operates with long and variable lags, typically 12 to 18 months. The Fed wants to see what the effect of this tightening is before they continue."

To find out Berezin's recommendations for recession-proof assets, watch the above video.

Follow David Lin on Twitter: @davidlin_TV

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