The likelihood of the United States entering a recession appears to be increasing. Many forecasters predicted a 100% probability of a recession in the US in October 2022. However, during that period the US Federal Reserve was aggressively hiking interest rates to combat 40-year high inflation. The impact of rate hikes on the economy was widely anticipated by markets; the only question was whether it would be a hard or gentle landing.

Today, the scenario might have changed and inflation seems to be cooling down with jobs and consumer spending data also showing a slowdown in the economy. Is it the time for a Fed pivot? Mark Zandi, chief economist at Moody’s Analytics is asking for a pause. Here is what Zandi recently tweeted to send a message to the US Federal Reserve.

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Mark Zandi Tweets – The Fed should pause its rate hikes. Now. The No. 1 priority is rightly inflation, but it looks increasingly for sure headed back to target. Vehicle prices are set to fall, the growth in the cost of housing services has peaked, and even non-housing service inflation has rolled over.

The Fed can also take solace in the mounting evidence that job growth is throttling back, and the tight labor market is easing as companies pull unfilled positions and layoffs pick-up. Wage growth is moderating, and already near a pace consistent with the Fed’s inflation target.

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The Fed would be wise to put more weight on financial stability when contemplating another rate hike. It took a full government backstop to end the bank runs a few weeks ago. The next earthquake will likely be in the non-bank part of the system, where the Fed has much less sway.

It likely won’t be existential for the economy if the Fed decides to increase rates another quarter percentage point at its early May meeting. But why take that risk? The risk of inflation remaining too high appears meaningfully lower than the risk of a debilitating recession.