Federal Reserve Chairman Jerome Powell reacts as he testifies before the Senate Banking, Housing, and Urban Affairs Committee hearing on the “Semi-Annual Monetary Policy Report to Congress,” on Capitol Hill in Washington, DC, US, June 22, 2022.
Elisabeth Frantz | Reuters
The Federal Reserve’s tracker of economic growth indicates an increased chance of the US economy entering a recession.
Most Wall Street economists point to an increased chance of negative growth going forward, but the number won’t come until at least 2023.
However, the Federal GDP in Atlanta The metric, which tracks economic data in real time and adapts constantly, sees second-quarter output shrink 1%. Combined with a first-quarter decline of 1.6%, that would fit in with the technical definition of a recession.
“GDP now has a track record, and the closer we get to the July 28 release [of the initial Q2 GDP estimate] Nicholas Colas, co-founder of DataTrek Research, wrote the more accurate it gets.
The tracker received a rather steep drop from its last estimate of 0.3% growth on June 27. Data appears this week Further weakness in consumer spending Inflation-adjusted domestic investment prompted the cut, putting the April-June period in negative territory.
It was one of the big changes in the quarter high interest rates. In an effort to stem rising inflation, the Fed has raised its benchmark borrowing rate by 1.5 percentage points since March, with more increases likely over the remainder of the year and possibly into 2023.
Federal Reserve officials have expressed optimism that they will be able to tame inflation without pushing the economy into a recession. However, the chief Jerome Powell He said earlier this week reduce inflation It is the main business now.
in Panel discussion earlier this week Presented by the European Union, Powell was asked what he would tell the American people about how long it would take for monetary policy to address the rising cost of living.
He said he would tell the audience, “We fully understand and appreciate the pain that people are going through dealing with rising inflation, that we have the tools to address that and the resolve to use them, that we are committed and we will make it work. Bringing inflation down to 2%. The process is likely to involve some pain. , but the worst pain would be a failure to tackle this high inflation and allow it to continue.”
Whether that turns into a recession is unknown. The National Bureau of Economic Research, the official arbiter of recessions and expansions, notes that two consecutive quarters of negative growth Not necessary to slack to be announced. However, since World War II, there has not been a case in which the United States has shrunk in successive quarters and has not been in a recession.
Sure, this tracker can get fickle and fluctuate with each data release. However, Colas noted that the GDP model now becomes more accurate as the quarter progresses.
“The model’s long-term record is excellent,” he said. “Since the Atlanta Federal Reserve first started running the model in 2011, its average error has been just -0.3 points. From 2011 to 2019 (excluding economic volatility around the pandemic), the average tracking error has been zero.”
He further noted that US Treasury yields have noticed a slowdown in growth, declining significantly over the past two weeks.
“Stocks have not been comfortable with the recent dip in yields because they see the same problem emerging in the GDP data now: the US economy is slowing down rapidly,” Colas added.
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