Economic outlook pinpoints causes of our inflation-driven crisis

Dr. Timothy Nash

Director, The McNair Center

Dr. Timothy Nash
June 20, 2022

Economic outlook pinpoints causes of our inflation-driven crisis

The major causes of our current inflation-driven crisis are the roughly $6 trillion in largely excessive spending the Trump and Biden Administrations spent in the name of COVID relief and economic recovery; President Biden’s reregulation of the U.S. economy; and the dramatic expansion of the U.S. Federal Reserve Bank’s balance sheet from $4.14 trillion (January 2020) to about $9 trillion (May 2022).
U.S. fiscal, monetary and regulatory policies since early 2020 are the primary cause for a pending recession over the next 12 to 18 months.
Positive and negative signs
Many in Washington have argued that inflation is a global phenomenon and Biden’s policies are not responsible for the high inflation levels in the United States. Including the rest of the world, the Biden Administration claims U.S. inflation is largely due to supply chain issues and the war in Ukraine. We disagree.
A recently-released study from the Organization for Economic Cooperation and Development (OECD) shows U.S. inflation at the end of March 2021 at 2.6% and 8.5% at the end of March 2022. Over the same period, most of the largest European economies — countries much more directly impacted by the war in Ukraine — showed substantially lower rates of inflation. We believe differences in inflation rates can be attributed to less government intervention among our European allies over the same period. Consider the following: Inflation in the United Kingdom was 1% at the end of March 2021 and 6.2% at the end of March 2022; Switzerland had inflation of -0.2% at the end of March 2021 and 2.4% at the end of March 2022; Sweden had inflation of 1.7% at the end of March 2021 and 6.0% at the end of March 2022; Italy had inflation of 0.8% in March 2021 and 6.5% in March 2022; Germany had inflation of 1.7% in March 2021 and 7.3% in March 2022; and France had inflation of 1.1% in March 2021 and 4.5% in March 2022. The same holds true with other global economic powers, like South Korea, whose inflation was 1.9% at the end of March 2021 and 4.1% at the end of March 2022; and Japan, which had inflation of -0.4% in March 2021 and 1.2% in March 2022. Finally, Canada experienced inflation of 2.2% in March 2021 and 6.7% in March 2022.
In the case of the above-mentioned economies or other OECD countries with inflation rates close to ours or higher, a strong correlation between inflation and excessive monetary, fiscal and/or regulatory policy exists — similar to what took place in the United States over the same period.
Current Issues
For months, we have been discussing the growing number of economic signals that a recession will be part of the U.S. economic landscape sometime between Q2 2022 and the end of 2023 at the latest. In addition to our previous discussions on inverted yield curves, the rule of 4%, falling used car prices and tracking quarterly U.S. GDP, the following indicators add fuel to the argument for a pending recession.
1. Stock market parallels and the Great Depression
On May 20, 2022, the Dow Jones Industrial Average (DJIA) experienced its eighth straight week of decline – not seen since 1932. In fact, the Dow Jones Industrial average has been volatile throughout President Biden’s administration (30,930.52 on Inauguration Day; an all-time closing high of 36,799.65 on Jan. 4, 2022; 31,253 on May 20, 2022; and, just under 31,393 on June 10).
2. The National Federation for Independent Business (NFIB)
The NFIB, tracks quarterly small business economic trends (since 1973) and conducts monthly surveys (since 1986). Its latest survey data released on April 12 reflects an all-time record low for business confidence.
3. The University of Michigan Consumer Sentiments Index
The University of Michigan’s Consumer Sentiments Index, perhaps the most respected tool for tracking consumer confidence, was down 14% from May in its preliminary June release last week. The June preliminary report came in at 50.2, down 8.2 from May, registering its lowest recorded value since the recession of 1980.
4. Most recent CNBC’s CFO Council survey results
In a recent CNBC survey of top corporate chief financial officers (CFOs), the consensus is for the Dow Jones Industrial Average to decline 18% from its 2022 high to roughly 30,000 before it can realize a sustainable rebound. Every CFO in the survey believes a U.S. recession can’t be avoided, with 68% predicting a recession by the end of the first half of 2023, while the remaining 32% believe a recession will occur by the end of 2023 or sooner.
5. The S&P 500 has declined more than 20% since January 2022.
The investment research firm CFRA found that S&P 500 bear markets on average begin seven months before the start of a recession. A bear market is defined as a decline of 20% or more in a broad-based stock market like the S&P 500. This correlation has resulted in recession nine out of the 12 times it has occurred since 1948. If the data holds true for the 10th time since 1948, a recession can be expected in early August, seven months from the S&P 500’s all-time high in January 2022.
Unfortunately, the tell-tale signs of a recession continue to grow.
Recently-released U.S. CPI and PPI data indicate that inflation is not under control and the Federal Reserve will need to take continued strong action similar to its June decision if it is to tame inflation. However, we do not believe our current Federal Reserve Board has the policy knowledge, courage and time to reduce inflation while navigating a soft landing and avoiding a recession.
Contact Us
Comments or questions should be directed to Dr. Timothy G. Nash at The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by McNair student scholar Brad Getchel. To view Northwood University’s Monthly Economic Outlook Newsletters from previous months, visit: For more information about Northwood University, our academic programs and enrollment opportunities for students, visit

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