The Outlook -- The Next Recession: Just Around the Bend?
WASHINGTON -- There's no economic law requiring expansions to come to an end. But they always do. And the events of the past few weeks suggest that the current one may now be entering its last lap.</br></br>That's not to say a recession is imminent. It doesn't seem to be. At the moment, the problem is not the economy's weakness but its unrelenting strength.</br></br>Nevertheless, a certain dialectic has begun which, if history is any guide, will likely bring on a recession at some point in the not-too-distant future. The process may take six months, a year or even two years. But the unfortunate outcome will be difficult to escape.</br></br>While the pattern has been emerging for some time, it became clear on Feb. 22, when the Labor Department announced that consumer prices rose at a 7.2% annual pace in January. Unlike other one-month price jumps in recent years, this one was spread over a surprisingly broad array of goods and services. The Federal Reserve responded with its most aggressive tightening move yet, pushing up short-term interest rates a half percentage point.</br></br>This tug-of-war between the economy and the central bank is likely to continue, with signs of higher inflation being met with still-higher interest rates. The battle will escalate until, at some point, higher rates will tilt the economy into recession. "Almost by definition," says Bank of America economist Steven Wood, "the Fed will overdo it."