By Laura Sanchez

Investing.com – Investors these days pay close attention to the various macro data we learn about the health of the global economy. In the case of the United States, Gilles Moëc, Chief Economist at AXA (EPA:) Investment Managers, analyzes the risks of a recession in the United States following the Fed’s new measures.

For the , Gilles Moëc predicts that “a , in line with consensus, will peak at 5% in March. Powell’s tone will be key: either on the verge of a pause, like the Bank of Canada, or keen to ease finances. In this regard, the AXA IM economist points out: “So far this cycle, the Fed is already 425 basis points in 9 months lifted, and we expect an overall effort of 500 basis points on declines only about 2 years after the initial hike.”

First, Moëc notes that “everything seems to indicate that the American economy is slowing down, but at a fairly slow pace”. Given that this coincides with some disinflation, “hopes that the US economy can land without going through the ‘recession phase’, despite ongoing monetary tightening, receive some support.” Therefore, AXA IM continues to believe that “the likelihood of this happening is remote”.

To explain what might happen, Gilles Moëc explains: “Since the advent of ‘modern monetary policy’ in the early 1960s, the United States has seen ten episodes of Fed tightening, but there has been only one instance of monetary tightening without recession in 1994. Could this situation repeat itself?

According to Moëc, “The two main differences between today and the ‘miracle of 1994’ concern the inflationary environment and supply conditions not having to cope with pricing pressures weighing on margins and purchasing power, which has led to a different pattern than the current one in which the “As the private sector has to cope with both the consequences of monetary tightening and the inflationary shock, there is reason to believe that these adverse forces are only just beginning to have an impact,” he notes.

On the other hand, “supply conditions were much more favorable in the mid-1990s than they are today. Potential growth was higher then, while it is now likely to be declining. Today, the United States faces a fairly low labor force participation rate and slower working-age population growth.”

According to the economist, “the prospect of a significant acceleration in green investment through the Cut Inflation Act may come too late to allow the US economy to avoid a likely brief excursion into a weak contraction in GDP over the next few quarters , especially since the overall magnitude of monetary tightening this time is likely to dwarf that of 1994.” Then between February 1994 and February 1995, the Fed hiked a total of 300 basis points and only started cutting rates 18 months after its first hike. So far, the Fed already raised 425 basis points in 9 months of this cycle and we expect an overall effort of 500 basis points, with cuts only about 2 years after the first raise.”