After November CPI report, ex-Treasury economist warns of major 'shock' to US economy

Reacting to core inflation retreating for the second consecutive month after a September high, a market panel on "Mornings with Maria" warned the Federal Reserve isn’t looking ahead to how a recession could cause "whiplash" and "shock" to the U.S. economy.

"It's definitely possible we go into recession," former Treasury Department economist David Beckworth said on Tuesday. "It would be an incredible whiplash to the economy because the labor market is still doing relatively well. To get really steep job losses would be a drastic, drastic change and it would be a shock."

Inflation moderated more than expected in November, an early sign that painfully high consumer prices are beginning to loosen their stranglehold on the U.S. economy.

The Labor Department said Tuesday that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 0.1% in November from the previous month. Prices climbed 7.1% on an annual basis.

INFLATION EASES MORE THAN EXPECTED IN NOVEMBER TO 7.1%, BUT CONSUMER PRICES REMAIN ELEVATED

Those figures were both lower than the 7.3% headline figure and 0.3% monthly increase forecast by Refinitiv economists, a potentially reassuring sign for the Federal Reserve as it tries to tame runaway inflation with a series of aggressive interest rate hikes. It marked the slowest annual inflation rate since December 2021.

But Beckworth, along with Fox News contributor Liz Peek and billionaire CEO John Catsimatidis, cautioned that the Fed is acting based on what it sees in the rearview mirror, instead of looking at next year’s recession probability.

"I think the Fed is focused on the service part of the index, which is important, but it's also important to note it tends to lag the rest of the economy," Beckworth said. "The Fed may be looking in the rearview mirror as it guides rates and it may hit a bump in the road and not see it coming, and that would be the recession. So I do worry the Fed isn't as forward looking as it could be, and that, I think, is what the market is telling us [about] the ten-year yield today."

"I don't think we know what the results of this big tightening cycle will have been. Those time periods have always been associated with a very deep recession, and I think we are going to pivot, all of us who watch this material" Peek agreed. "From watching inflation [and] watching the Fed, to watching job losses and watching earnings, because I don't think analysts are at all realistic about what the earnings are going to look like next year. I think investors are going to have to start focusing on the impact of this Fed tightening, which we have not yet seen."

While the Fed is expected to announce a 50-basis point hike following its last meeting of the year Wednesday, Catsimatidis encouraged a "pause" allowing the markets to "sort themselves out."

"When energy prices had doubled, that caused everything else to increase - the transportation costs for food, the price of heating oil for buildings, rents that are all-time high right now because we're also in the real estate business," Catsimatidis explained. "So my advice to Jay Powell is, give it a pause. Don't create another problem in the real estate industry nationwide by continuing to raise interest rates."

The Gristedes, D’Agonisto and United Refining Company head also called on the Biden administration to open the full potential of the U.S. oil supply.

"If Joe Biden opened up North America, my next prediction would be $55 a barrel, and it could happen," Catsimatidis argued.

FED TO KEEP INTEREST RATES HIGH ALL NEXT YEAR, MAKING A RECESSION VERY LIKELY: SURVEY

With the Federal Reserve focused on goods and services, the panel further warned that the piece of the "puzzle" the Fed’s missing is the labor market and wages.

"Underneath all of this data, the one thing that persists and will persist is wage, increased wage demands. We're seeing it in union negotiations," Liz Peek noted. "The truth is, we haven't yet seen the roll through of wage demands coming out of unions in reaction to inflation over the last year… So going forward, everybody wants more money to deal with the inflation they've already experienced. That is what the Fed is going to struggle with next year."

"Look at the labor market, this has always been the puzzle this year. It still is really strong, it's really robust," Beckworth noted. "On the other hand, we see real income… going down."

Rep. Jason Smith, R-Mo., called out Democrats’ "reckless spending" on the panel, arguing fiscal bills like the American Rescue Plan and Inflation Reduction Act have led to the highest inflation in 40 years.

"Since Joe Biden's taken the oath of office, inflation has gone up 14.3%. That is almost two months' salary of every hardworking American, and that is who's feeling the pinch, that who's struggling," Rep. Smith also said on the panel. "In the 105 months prior to Joe Biden being in office, real wages increased 102 out of those 105 months. But they have declined the last 19 months in his administration. It's because of his reckless economic policies."

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When Republicans gain control of the House next year, Smith argued Democrats will likely pin blame for a recession on the GOP when it eventually hits Americans’ wallets.

"Look at the inflation crisis: Joe Biden refused to even believe that inflation existed at the very beginning. Then he tried to blame it on COVID, then he tried to blame it on Putin. And then they finally came across reality that inflation existed. That's exactly what they'll do here," Smith said. "When you're talking about the rising cost of food, it's only going to get worse because those farmers who I represent, they're paying 50% more for diesel, for wages for the people working on their farms. It's going to get difficult."

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FOX Business’ Megan Henney contributed to this report.