Arvest Wealth Management investment chief analyzing Fed moves to tame inflation, soft-land the economy

by Roby Brock ([email protected]) 860 views 

Clay Nickel, Arvest Wealth Management chief investment officer and strategist, analyzes a lot of data and talks to a variety of industry sources. He notes that current economic conditions are tricky to interpret.

Technically, the U.S. is in a recession – two quarters of negative GDP – but jobs are strong and business profitability is considerable despite inflationary pressures. Those positives are generally not associated with a recession.

“We are still in a situation where a lot of the economic data is tainted by just the abnormalities that occurred through the COVID pandemic,” Nickel said. “So while we see inventories and supply chains trying to catch back up that created some of the issues that we had with that first quarter GDP – and quite honestly could be revised away at some point in the future – a lot of that for us is irrelevant.”

“We still see a situation where employment is strong. The biggest problem we hear from most employers is they can’t find the people that they would like to hire,” he added.

The Federal Reserve Bank’s monetary policy board has been raising the fed funds rate, which is pushing interest rates higher. The effort is designed to control consumer demand, tame inflation, and cool the economy.

“It is very likely that they [the Fed] will continue to err on the side of being overly aggressive and raising interest rates,” Nickel said. “At some point in 2023, it’s highly likely that the Federal Reserve, because they are being so aggressive, may over-tighten and create not just a technical recession, but something that we would experience as a fairly moderate, possibly a little deeper recession that begins in 2023.”

“We think that there is going to be some economic pain at some point in the future as a result of what the Federal Reserve is doing. And part of it is they are in a tough spot. We had an unprecedented fiscal response in addition to the unprecedented monetary response from the Federal Reserve. So there’s a lot of toothpaste that’s been squeezed out of this tube. The Fed is desperately trying to get some back in, in regards to inflation,” he added.

You can watch Nickel’s full interview in the video below.