The Fed's Inflation Misjudgment Points to a 2024 Recession

Duke University finance professor Campbell Harvey argues that the Federal Reserve's understanding of inflation is flawed, increasing the likelihood of a recession in 2024. Harvey criticizes the Fed's inflation gauge, which heavily weights shelter costs, and argues that it fails to account for the lag in shelter inflation. He suggests that if shelter inflation were normalized, overall core inflation would measure closer to 1.5% or 2%, well below the Fed's 2% target. Harvey warns that the Fed's ongoing rate hikes could drive the U.S. economy into a recession, as it has already achieved its goal of taming inflation. He also highlights the inverted yield curve as a recession indicator, with recent inversions suggesting a potential U.S. recession.