The Fed's own economists don't know if the US will escape a recession or not. They say it's basically a coin toss.
Joshua Roberts/Reuters
- The Fed's own economists aren't sure if the US economy will suffer a recession or not.
- They believe it's a virtual coin toss whether there's a mild downturn or none at all.
- Resilient consumer spending and employment could offset tighter bank lending, the staff said.
Experts can't agree whether the US economy will slump into recession or escape a downturn. Even the Federal Reserve's own economists say it's basically a coin toss, the minutes from the Fed's June meeting show.
The central bank's staff predicted that banks would keep pulling back on lending, tightening financial conditions and causing real gross domestic product (GDP) to decline modestly for the next two quarters. They also forecast that unemployment would rise this year, peak in 2024, and hover around that level throughout 2025.
Even so, the Fed's in-house experts noted that buoyant consumer demand and the booming US job market could prevent the economy from shrinking.
"Given the continued strength in labor market conditions and the resilience of consumer spending, however, the staff saw the possibility of the economy continuing to grow slowly and avoiding a downturn as almost as likely as the mild-recession baseline," the minutes read.
Annualized inflation surged to a 40-year high of 9.1% last June, but has cooled since then to 4% in May, or double the Fed's 2% target. Fed Chair Jerome Powell and his colleagues have responded by hiking interest rates from nearly zero last spring to north of 5% today, and have penciled in a couple more hikes in the months ahead.
Higher rates curb price growth by encouraging people to save instead of spend, and by raising the interest costs of car loans, credit cards, mortgages, and other forms of debt. They also tend to damp demand, lift unemployment, and pull down asset prices, increasing the risk of a recession.
The Fed's hikes have eroded the value of banks' bond and commercial real estate (CRE) portfolios, and fanned fears of further bank runs following the collapse of Silicon Valley Bank and Signature Bank earlier this year. Wary lenders have pulled back as a result, sparking a credit crunch that threatens to cripple debt-dependent industries such as CRE, and choke overall growth.
More positively, US GDP appears to have increased in the second quarter, job gains have been robust in recent months, and unemployment remained low at 3.7% in May. But it's unclear whether the economy will weather the next few months or capitulate as the Fed turns the screw on inflation, prompting the central bank's staff to say it's a virtual 50-50.
from Business Insider https://ift.tt/viDJVcs
via IFTTT
Comments
Post a Comment