In 2008, I was working at Citigroup in NYC. Ben Bernake was the Fed Chairman, and rumors about which bank would fail next were swirling. Hearing concerns today about the monetary mistakes the Federal Reserve made 15 years ago is again problematic.

Author Desmond Lachman lays out some key points…

The Federal Reserve is too focused on fighting inflation and neglecting deflationary risks.

Here are the key points:

• The Fed raised interest rates rapidly in 2022 to combat high inflation.
• This might have been appropriate then, but economic conditions have changed.
• Inflation is now closer to the Fed’s target, and deflationary forces are emerging.
• Commercial real estate crisis: High vacancy rates due to remote work are expected to cause significant price drops. This could lead to loan defaults and bank failures, especially for regional banks.
• China’s economic slowdown: The bursting of China’s housing bubble and loss of investor confidence is predicted to cause a prolonged period of domestic deflation. This will put downward pressure on global commodity prices and increase export competition.

Compare the 2008 financial crisis, when the Fed downplayed the risks of the subprime mortgage crisis, to the current one. The Fed is making the same mistake today by ignoring the potential dangers of the commercial real estate crisis and China’s economic woes.

The Fed needs to change course and avoid causing an unnecessary economic recession. Click here for the Op-Ed.