American economist Paul Krugman said that the economy may be turning faster than most people think and the Federal ReserveFederal Reserve may have overshot in its aggressive response to rising inflation.
What Happened: Krugman took to Twitter Inc. TWTR Wednesday to weigh in on inflation and the strength of the U.S. labor market.
I don't think many people appreciate how fast the economy may be turning, because I don't think it's possible to turn around, according to Krugman via tweet.
The Fed began tightening at the beginning of the year as long-term rates started to rise in anticipation of rate hikes.
Krugman said that long rates affect the real economy with a lag.
He said the lag is about six months behind, but we are only at the beginning of a significant Fed-induced contraction, and he said that six months is probably conservative.
Despite the sharp decline in job openings in August, the U.S. is still well above pre-COVID 19 pandemic levels, according to Krugman. He suggested two more months of similar declines would close the gap.
Why does this analyst think that it is true that this analyst thinks so?
The Fed was behind the curve on rising inflation. I worry that we may be enacting the old joke about the driver who runs over a pedestrian, then tries to fix it by backing up and running over the guy a second time, Krugman said.
SPY Price Action: The SPDR S&P 500 SPY has been dropping since the start of the year due to continued inflation concerns. It hit new 52 week lows this week before bouncing back.
The SPY closed Wednesday down 0.23% at $377.09, according to Benzinga Pro.