It’s too soon to say whether the Federal Reserve Board’s efforts to reduce inflation will lead to a recession, but continuing interest rate hikes increase the chances, National Retail Federation Chief Economist Jack Kleinhenz said on Jan. 3.

“This year starts with the possibility of easing inflation but also uncertainty,”, referring to the interest rate hikes. There is no easy fix for inflation, and the Fed’s job of trying to bring down rising prices without damaging the labor market or the rest of the economy is not enviable,” he warned.

“It isn’t impossible to sidestep a recession, but when the economy slows it becomes very fragile and the risk rises significantly If a recession is in the cards, it will likely be rising interest rates that set it off,” in Kleinhenz’s view.

Although NRF’s final holiday spending data won’t be available until Jan. 18, it said November sales as calculated to have increased 5.6%, year over year, putting the holiday season on track to meet NRF’s forecast of 6% to 8% growth over 2021.

Following a 2.6% year-over-year increase in the third quarter, Gross Domestic Product was growing at a 2.7% rate in late December, according to the Federal Reserve Bank of Atlanta’s GDP Now real-time tracker.

While the Fed’s interest rate hikes are intended to slow the economy and bring inflation under control, it can take six months or more for monetary policy to have an impact on GDP and 18 months for inflation, NRF pointed out.

That means policymakers “act knowing they will not see the impact for months and that their action comes at the risk of inducing a recession,” said Kleinhenz. “There are downside risks both in doing too much and too little, and the Fed is well aware that the balance is delicate,”

What makes this particularly sobering is that NRF’s economic prognostications in recent years have tended to be on the optimistic side. Others believe the opening stages of a recession are already here.