Analysts are increasingly looking at the possibility of a downturn in the US, following the US Federal Reserve’s biggest rate hike since 1994 and signs of weakening consumer spending, according to Bloomberg.
It is noted that the Fed raised Yesterday interest rates fell by 75 basis points to a range of 1.5% to 1.75%, as officials intensify the fight against inflation, which remains persistently high.
Wells Fargo & Co. now predicts a “mild recession” by mid-2023, as inflation becomes more entrenched affecting consumer spending and as the Fed takes more aggressive action to address it. Moody’s Analytics, meanwhile, said the chances of a mild landing were lower.
“The Fed will raise interest rates until officials curb inflation, but the risk is that they will hurt the economy as well,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “Growth is slowing down and the effects of tightening conditions on financial markets and the lifting of monetary policy have not yet hit the economy.”
US retail sales fell for the first time in five months in May as higher prices hit consumers’ pockets. Also on Wednesday, the Fed Atlanta downgraded its second-quarter growth estimate to 0%. And Guggenheim chief investment officer Scott Minerd said the US could already be in recession, given the slowdown in consumer spending.
A growing number of economists have recently stated that a contraction next year is difficult to avoid. Wells Fargo’s Jay Bryson said about a week ago that he expected a mild landing but now his baseline scenario predicts a mild recession.
At the same time, unemployment remains at historically low levels and while unemployment claims rose to a five-month high last week, the labor market remains tight. This situation is expected to support the additional costs and keep any economic contraction from being too deep, according to Wells Fargo.
According to the latest estimates of Bloomberg Economics, the probability of a recession by the beginning of 2024, which was only slightly felt a few months ago, is now approaching the probability close to 3/4.
Recession is usually defined as the reduction of total economic activity, which is broad and lasts more than a few months. The United States has just emerged from the deepest recession of the post-war period, in 2020, after the economic impact caused by the coronavirus pandemic.
Source: Capital
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