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Global Economic Outlook – September 2022 The largest near-term push on inflation is shelter costs. The Fed commits to a recession Changes in home values take at least a year to show up as a change in measures of home ownership costs; they were Federal Reserve Chairman Jay Powell laid to rest the fantasy still accelerating through spring 2022. Rents, where demand of a soft landing in his annual speech for the Kansas City has shifted in recent months, continue to skyrocket. Shelter Federal Reserve Bank’s Jackson Hole, Wyoming Symposium costs are particularly problematic, as they account for nearly held in August. Either the Fed runs the risk of stoking a a third of the consumer price index and are still rising. more entrenched and corrosive cycle of inflation, which Acute labor shortages, a surge in more chronic and costly requires a deep and scarring recession to derail, or it health conditions and the costs associated with treating triggers a mild but prolonged recession and smaller increase Covid patients are putting upward pressure on medical in the unemployment rate today. The latter represents the costs. Rural hospitals are the most vulnerable. Consolidation lessor of two evils. is accelerating, which will further increase costs and limit The Fed can’t grow food or pump oil. It can reduce demand access to care. to better balance with what is becoming a more chronically Last, but by no means least, inflation is inertial. Long undersupplied world; that is what it intends to do. periods of high inflation tend to distort the behaviors of households and firms. Workers demand wages be indexed to move up with measures of inflation, while firms start Diane Swonk baking price hikes into their strategies to cover elevated Chief Economist, KPMG US costs. That phenomenon stoked the stagflation of the Timothy Mahedy 1970s, a period the Fed wants to avoid, even if it means a Senior Economist, KPMG US rise in unemployment. Chart 8: U.S. unemployed persons per job opening 700 Slack labor market 600 500 t of recession400 0 = star300 0 200 Index, 1 100 Tight labor market 0 2 4 6 8 10 12 14 16 18 20 22 24 Months since start of recession 2001 recession 2008 recession 2020 recession Source: KPMG Economics, Bureau of Labor Statistics. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 9

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