Even if unofficial, recession is already a reality for the US, say analysts

Is the US heading for a recession? Or is the economy already in one? That – almost – doesn’t matter.

For many Americans, it already looks like a recession. Rising prices for, well, just about everything, make it harder to pay daily expenses and monthly bills.

The stock market has plummeted this year. Home sales began to fall. Consumer confidence is low.

“People are bracing themselves for the fact that we’re already in a recession right now or that there’s a high likelihood that we’ll be in one soon,” said Hady Farag, partner and associate director at the Boston Consulting Group.

The Federal Reserve kept inflation fears in mind as it tried to balance aggressive rate hikes with concerns that excessive tightening would destroy growth.

The Fed raised rates last Wednesday (27) by another three-quarters of a percentage point, after a similarly large move in June.

“The word recession is casting a long shadow over the markets, but in a way, the only way out of this inflationary environment is for central banks to trigger this recession,” said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers. solutions. in a report this month.

With that in mind, investors need to prepare for the downturn that already appears to be under way, and policymakers need to prepare for the growth slowdown… or worse.

The US economy shrank in the first quarter and also in the second quarter of the year.

While two consecutive quarters of negative numbers is the common understanding of a recession, this is not the official definition.

A group called the National Bureau of Economic Research is tasked with officially declaring the beginning and end of economic crises – and the NBER tends to wait several months before making any decision on recession dates.

Treasury Secretary Janet Yellen said in an interview that aired Sunday on NBC’s “Meet the Press” show that a recession is “a broad contraction in the economy that affects many industries” and added that she would be “surprised” if the NBER say that the economy is now in recession.

But you can probably expect a lot of headlines and political talk this week about a recession because of the GDP report released this Thursday.

Not all recessions are the same

“The recession is not our base case. We continue to expect the economy to slow significantly but avoid a recession in 2022,” Katie Nixon, chief investment officer at Northern Trust Wealth Management, said in a recent report.

But she added that “it is still possible that the technical definition of a recession could be met.”

Farag of the Boston Consulting Group also pointed out that even if the economy has already entered a recession, that doesn’t mean a recession will be as long and painful as some previous recessions.

He said most investors don’t seem to be expecting a repeat of the early 1980s or another Great Recession like 2008.

“No two recessions are the same. I don’t think people are deeply concerned about a major recession or massive stagnation,” he said.

It’s also worth remembering that if there is a recession, the Fed could quickly reverse course and start cutting rates again to try to restart the economy.

That’s exactly what the central bank did after a series of rate hikes in 1999 and early 2000, just as the dot-com boom was collapsing.

But when the economy slipped into recession in 2001, the Fed cut rates 11 times that year.