Post by ehsanulh125 on Jan 9, 2024 7:07:01 GMT
In the fight against inflation, the US central bank, the Federal Reserve, has raised the base interest rate to a band of 5.25-5.5 percent since the beginning of 2022. Even in historical comparison, rapid interest rate hikes and prolonged maintenance of high interest levels caused many to worry that the austerity could cause a recession in the US economy in 2023. "The longer a plane circles at altitude, the more likely it is to run out of fuel." Bank of America's head of global analysis, Ethan Harris, made this comment, referring to growth prospects. However, analysts' expectations regarding growth are significantly different. In the first half of the year, opinions regarding the economic growth prospects of the USA could be divided into three camps. In the recession debate, those who expected a soft landing (soft landing), i.e. a slowdown in growth, opposed those who expected a crash, i.e. a marked recession (hard landing).
A couple of weeks ago, those Country Email List who predicted the strengthening of economic growth (no landing) appeared in the debate. The question arises: why could there be such a difference of opinion regarding the performance of the US economy at all? Several macroeconomic variables show a strengthening of growth by 2023 Until June of this year, the unemployment rate in the USA was 3.53 percent, below the natural unemployment rate (4.0 percent) published in the Fed's forecast. Meanwhile, an average of 278,000 jobs were created per month. These data indicate a very tight labor market. Despite the interest rate hike, credit card debt has risen to record levels, and financial market risk appetite has returned. All of these together induce strong private consumption.
Other indicators predict recession With the exception of one month since November 2022, the manufacturing PMI has been below the magical 50 level, which indicates a strong slowdown in economic activity. The American yield curve was inverted, the difference between 10-year US government bond yields and 2-year yields widened to minus 116 basis points at the end of July. The last time such an inversion occurred was in 1982. The reason for the inversion is that the market participants expect a significant recession in the medium term, and a strong interest rate cut from the Fed as a response. Perhaps even more ominous than these is that the real GNI will show a decline starting from the fourth quarter of 2022. This preceded the decline in GDP in previous recessions. Meanwhile, according to forecasts, the decline in inflation has stalled.
A couple of weeks ago, those Country Email List who predicted the strengthening of economic growth (no landing) appeared in the debate. The question arises: why could there be such a difference of opinion regarding the performance of the US economy at all? Several macroeconomic variables show a strengthening of growth by 2023 Until June of this year, the unemployment rate in the USA was 3.53 percent, below the natural unemployment rate (4.0 percent) published in the Fed's forecast. Meanwhile, an average of 278,000 jobs were created per month. These data indicate a very tight labor market. Despite the interest rate hike, credit card debt has risen to record levels, and financial market risk appetite has returned. All of these together induce strong private consumption.
Other indicators predict recession With the exception of one month since November 2022, the manufacturing PMI has been below the magical 50 level, which indicates a strong slowdown in economic activity. The American yield curve was inverted, the difference between 10-year US government bond yields and 2-year yields widened to minus 116 basis points at the end of July. The last time such an inversion occurred was in 1982. The reason for the inversion is that the market participants expect a significant recession in the medium term, and a strong interest rate cut from the Fed as a response. Perhaps even more ominous than these is that the real GNI will show a decline starting from the fourth quarter of 2022. This preceded the decline in GDP in previous recessions. Meanwhile, according to forecasts, the decline in inflation has stalled.