After huge Fed interest rate hike, is a recession likely?

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After huge Fed interest rate hike, is a recession likely?

June 16, 2022 -

As the Federal Reserve announces a rate change, traders work on the floor at the New York Stock Exchange in New York, Wednesday, June 15, 2022. (AP Photo/Seth Wenig)

As the Federal Reserve announces a rate change, traders work on the floor at the New York Stock Exchange in New York, Wednesday, June 15, 2022. (AP Photo/Seth Wenig)

As the Federal Reserve announces a rate change, traders work on the floor at the New York Stock Exchange in New York, Wednesday, June 15, 2022. (AP Photo/Seth Wenig)

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 am 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?

Economists look for a steady rise in job losses and a surge in unemployment. Increasing the unemployment rate by three-tenths of a percentage point on average over the previous three months usually leads to an eventual recession.

Fifth, when might a recession come?

Fed Chair Jerome Powell has vowed to do whatever is necessary to curb inflation, including raising interest rates so high as to weaken the economy. Economists say that if this happens, the Fed could potentially trigger a recession, perhaps in the second half of next year. However, since American families are in much better financial shape than they were before the extended 2008–2009 Great Recession, economists believe any recession would likely be mild.

How to spot a rip current

The Southern Baptist Convention has been meeting this week, approving actions to address its sex abuse crisis and choosing a Texas pastor as its next president. If you are a Southern Baptist, this story is obviously relevant to you.

If you are a pro-life supporter, escalating attacks against pro-life churches and organizations feel personal to you. If you are planning a trip to the beach this summer, this video explaining how to spot a rip current may be practical knowledge for you. If you use Microsoft’s Internet Explorer, its demise yesterday directly affected you.

Here’s my point: we tend to read the news in the same way we experience life, which is through the prism of personal relevance. The economy affects us all, which is why I began today’s Daily Article with it. If I had headlined with the Internet Explorer story, I suspect you might not have opened the article.

The relevance of relevance to us is obvious. But the relevance of relevance to our kingdom mission may be less so.

Why “you’ve got to be believed to be heard”

I first read You’ve Got to Be Believed to Be Heard by communication expert Bert Decker twenty years ago. It is still one of the most significant books in its field I have ever encountered.

Decker explains that the “First Brain,” composed of the brain stem and limbic system, is our “emotional brain,” while the “New Brain,” our cerebral cortex, is our “thinking brain.” The First Brain is the “gatekeeper” to the New Brain. It focuses on survival and filters information through the prism of trust. If it does not believe information or consider it relevant, it hinders the “thinking” brain from interacting with it.

This is why, as Decker notes, “people buy on emotion and justify with fact.” The more believable, likable, and relevant we seem to people, the more effective our engagement with them.

However, I fear that many of us are pursuing the opposite strategy with the “culture wars” of our day. In our passion for declaring and defending biblical truth, we are tempted to see our opponents as our enemies. When we attack them and they respond in kind, our “side” rewards our passion and applauds our courage.

But are lost people attracted by such antagonism or repelled by it?

Abraham Lincoln on persuading others

Consider Jesus’ strategy. He met felt needs to meet spiritual needs, demonstrating his personal compassion and thus the relevance of his message. Because people knew he loved them (cf. Matthew 14:14), they “heard him gladly” (Mark 12:37).

Now he is ready to infuse us with his empathy for those we encounter. The first “fruit” of his Spirit is “love” (Galatians 5:22). If we ask, his Spirit will enable us to forgive as we have been forgiven and to love as we are loved. And the relevance of God’s word will become obvious through the relevance of our compassion.

Decker quotes Abraham Lincoln’s wise observation: “If you would win a man to your cause, first convince him that you are his sincere friend.” Lincoln called this “the great high road to his reason” and assured us that “once gained, you will find but little trouble in convincing his judgment of the justice of your cause, if indeed that cause really be a just one.”

Christians know the “justice of our cause.” Does our culture?

If not, why not?

NOTE: In following our ministry’s calling “to equip the saints for the work of ministry, for building up the body of Christ” (Ephesians 4:12), we strive to produce high-quality, nonpartisan, biblical content that calls Christians toward a deeper relationship with God and a bold, loving witness to the culture. Today, would you consider donating to our ministry to support our calling to equip the saints? And if you give today, your donation will be doubled by a generous matching grant of $35,000.

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