During a “Mornings with Maria” panel on Tuesday, former Congressional Budget Office director Douglas Holtz-Eakin reacted to warmer-than-expected August inflation data, warning that the future of the U.S. Economy Looks ‘Messy’ and Explaining Why.
STOCKS PLUNGE AS INFLATION RISE 8.3% IN AUGUST
DOUGLAS HOLTZ-EAKIN: Food, energy and housing represent 50% of the CPI, 50% of the budget of a typical family. That’s a 10.5% year-over-year increase. The American public is therefore not going to tolerate this inflation, and the Fed knows it. They will continue their course; this ratifies an increase of 75 basis points definitely at the next meeting. And the future is, I love that term, messy, there’s no doubt about it.
The Fed must see less job growth. He must see fewer job offers. It must see fewer homes built, must have slower retail sales growth. All of this is bad news for the average American, for the average business. And the only question is whether they will go too far.
And given the way they operate, which is to look at actual inflation and see it go down, they operate on a backward-looking rule of thumb, and they’re going to overtighten in the process to fight against this inflation. The only question is when we see the downturn, is it late this year or early next year? But it will happen.
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