All signs pointing to a deep and severe recession induced by fiscal and monetary policies

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The stock market’s worst day since June 2020 shows ‘the Fed has the worst problem in the world’ with inflation—and recession is the only solution

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Stocks plunged on Tuesday as fears that the Federal Reserve will ultimately spark a recession spread like wildfire after a hotter-than-expected inflation print.

The Fed has raised interest rates four times this year in an attempt to cool rising consumer prices, with Fed Chair Jerome Powell saying that his inflation fight is “unconditional” and rate hikes will continue even if it means some “pain” for Americans.

But despite Powell’s efforts, inflation, as measured by the Consumer Price Index (CPI), rose by 0.1% in August, and 8.3% compared to the same period a year ago, the Bureau of Labor Statistics revealed on Tuesday.

The Dow Jones Industrial Average fell 1276 points (or 3.94%) to 31,104 after the inflation data went public, as experts were quick to sound the alarm about the rising potential for a Fed-induced recession.

“The Fed has the worst problem in the world,” Chris Zaccarelli, Independent Advisor Alliance’s chief investment officer, told Fortune, arguing that the central bank will be forced to continue raising rates and shrinking its balance sheet even as the economy slows, which will bring a distinct rise in unemployment.

“It’s a political problem, not an economic problem—and the only cure for the current crisis is one that is politically infeasible,” he said. “If the Fed thought they were criticized too much by the previous administration, and they were, wait until they see the type of criticism they will be under as they deliberately create an economic scenario where unemployment jumps significantly.”

Zaccarelli sounded worried about what comes next: “Not only are they going to end up causing a recession, but it is going to be a bad one.”

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The rise in core inflation, in particular, likely puts the Fed’s goal of a “soft landing”—where inflation is controlled without sparking a recession—out of reach, according to EY-Parthenon’s chief economist Gregory Daco.

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While rising prices at the grocery store are worrying economists, their main concern seems to be shelter inflation. Overall shelter prices rose 0.7% in August, and 6.2% year over year.

While that may not seem like a lot, it’s a critical statistic, because shelter prices make up over 32% of the consumer price index, of which roughly 8% is rent prices and some 24% is owner’s equivalent rent (OER)—which is determined by a monthly survey that asks consumers who own a primary residence how much they would pay to rent instead of own their home.

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