The idea behind the Fed raising interest rates is to slow the economy down in order to slow down inflation. Normally, when the Fed stops raising rates, it ultimately causes a recession within 18 months, see chart below.
The last Fed hike was in July 2023, and using this historical relationship, we should see a recession before the end of 2024.
But we are likely to break this 18-month record during this cycle because of the continued strong tailwinds to growth from easy fiscal policy and easy financial conditions.
In short, the US economy continues to power ahead, driven by easy fiscal policy, a dovish Fed, and AI investments and AI wealth gains.
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
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