Wall Street is on the lookout for signs of an impending economic recession as the Federal Reserve tries to rein in the highest inflation in nearly four decades, and a gauge this week indicated a slowdown could be looming at the horizon.
A metric closely watched by the Federal Reserve Bank of Atlanta suggests the U.S. economy could be heading for a decline in second-quarter gross domestic product, the broadest measure of goods and services produced in a country.
The GDPNow tracker shows economic growth in the spring was flat at 0%, down sharply from its previous estimate of 1.3% on June 1 and 0.9% on June 8.
Recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, declining incomes and slowing retail sales, according to the National Bureau of Economic Research (NBER ), which tracks slowdowns.
INFLATION TIMELINE: MAPPING THE BIDEN ADMINISTRATION’S RESPONSE TO RAPID PRICE GROWTH
Economic growth in the United States is already slowing. The Bureau of Labor Statistics reported last month that gross domestic product unexpectedly shrank 1.5% in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still struggling. to the COVID-induced recession. .
If the economy declines in the second quarter, it could meet the technical criteria for a recession, although the NBER, the official arbiter, does not immediately confirm this.
POWELL SAYS FED COULD RAISE INTEREST RATES BY AN ADDITIONAL 75 BASIS POINTS AS INFLATION ROASTS
A growing number of Wall Street economists and firms, including Bank of America, Deutsche Bank and Wells Fargo, are forecasting the possibility of a recession over the next two years as the Federal Reserve prepares to tighten aggressively. its monetary policy in order to calm consumer demand. and bring inflation back to its target of 2%.
The Fed hopes to perform the rarest of economic feats as it shifts into inflation-fighting mode: cooling consumer demand enough for prices to stop rising, without crushing it to the point of plunging the country into a recession.
Although Fed policymakers expect to find that elusive sweet spot — known as the soft landing — history shows that the U.S. central bank often struggles to successfully bridge the gap between policy tightening and maintaining economic growth.
The Fed already voted on Wednesday to raise its benchmark interest rate by 75 basis points for the first time since 1994 as it steps up its war on inflation. Another interest rate hike of this magnitude is expected in July, which would put the federal funds target range between 2.25% and 2.50%, the strongest since the start of the COVID-19 pandemic. two years ago.
Rising interest rates tend to create higher rates on consumer and business loans, which slows down the economy by forcing employers to cut spending.
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Although Fed Chairman Jerome Powell said the central bank was not trying to provoke a recession, he did not rule out the possibility of a slowdown and admitted that the chances of a “landing in smoothness” succeeded shrink.
“We have a path to get there,” Powell said Wednesday, referring to a soft landing. “It doesn’t get easier. It gets harder”