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How far is the US Recession? | Trading Cocktail

How far is the US Recession?

How far is the US Recession?There are more and more indications that the US economy is slowing. Whether it has slowed down sufficiently to reduce inflation without entering a recession is a crucial concern.

According to figures released last week, the gross domestic product dropped for a second consecutive quarter, crossing the threshold into a recession. The first half of the year, which is characterized by a strong employment market, would be “weird” to categorize in that way, according to David Mericle, chief U.S. economist at Goldman Sachs Research. The official determination of whether the U.S. economy is in a recession is made by the National Bureau of Economic Research using a variety of factors.

That so, Goldman economists believe there is a greater than average chance of a full-blown recession during the next two years. They anticipate that the Federal Reserve will moderate the pace of rate increases to 50 basis points in September and 25 basis points in November and December, with a rate cap of 3.25 to 3.5 percent in the end.

According to Mericle, there are signs that the Fed has been able to restrain GDP growth enough to begin rebalancing the labor market and supply and demand within the economy. However, it is unclear whether this will be sufficient to slow increases in consumer prices back to the Fed’s target of 2% over a reasonable period of time. We talked to Mericle about the most recent GDP report and the parameters he uses to evaluate the state of the American economy.

Indicators of the health of the economy such as payroll employment, real personal income after deduction of transfers from the government, and industrial production all increased in the first half of this year. I believe it would be odd to categorize the first half of the year, a time of notable labor market advancement, as a recession.

How far is the US Recession? | Trading Cocktail

How far is the US Recession? We don’t think we’ve entered a recession yet, but that doesn’t mean we’re out of danger. It will still be difficult to solve the inflation problem without one. The economy has experienced a necessary slowdown to a growth rate that is below its long-term potential growth rate, but it is unlikely that a recession has begun. At the beginning of the year, we suggested that the Fed’s policy needed to be tightened more than was initially anticipated in order to reduce growth to below-potential levels, allowing supply to increase faster than demand and restoring the two to equilibrium. It appears that we are currently on the desired trajectory as a result of the fiscal and monetary policy tightening that has already been implemented or signaled this year.

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Analyzing the GDP report’s specifics reveals that consumer spending increased at a rate of 1%, which is broadly in line with our expectations for overall GDP growth. As expected when monetary policy tightening drives up mortgage rates, residential investment fell quite dramatically. We’re keeping a close eye on business investment because this is the area where we would be most concerned about the risk that deteriorating business sentiment could depress activity too much, too fast. Business investment declined in Q2 and while I expect it to start growing again in the second half of this year, we’re keeping a close eye on it.

How far is the US Recession? At its remaining meetings this year, we still anticipate the Fed to decrease the rate of tightening.

That’s what we’ve been anticipating for two reasons. First, we hypothesized that they would prefer to shift in smaller steps once the funds rate level reached, and particularly once it exceeded, their estimated neutral rate. Second, we expected Fed members to start giving the evidence of a more pronounced slowdown in growth more weight and to move away from their recent, more focused attention on the inflation figures.

At the July Fed meeting, Fed Chair Jerome Powell made both of these points. Fed officials appear to agree with our assessment that we are now on a low enough growth trajectory that it makes sense to start preparing to slow the pace of rate hikes in order to avoid unintentionally overdoing it. The Fed is still committed to trying to solve the inflation problem in a gentle way through a gradual rebalancing of supply and demand.

In the long run, the Fed wants to (1) keep economic growth below its potential pace, (2) rebalance supply and demand on the labor market, and (3) slow wage growth and inflation. We so keep an eye on indicators that show how well we are accomplishing those three objectives. I would say that so far, the activity data generally indicate that we are doing well on (1), the employment and job openings data indicate that we are off to a very good start on (2) but still have a ways to go, and the wage growth and inflation data indicate that we haven’t yet made any significant progress on (3).

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