Federal Reserve Chairman Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee for the hearing on the “Half-Annual Monetary Policy Report to Congress” on Capitol Hill in Washington, DC, US, June 22, 2022, in Washington, DC, US, June 22, 2022. .
Elizabeth Frantz | Reuters
A Federal Reserve tracker of economic growth is pointing to an increased likelihood that the US economy has entered a recession.
Most Wall Street economists are pointing to the potential for further negative growth, but that figure won’t come until at least 2023.
Although Atlanta Fed’s GDPNow Measure, which tracks and continuously adjusts economic data in real time, sees a 2.1% decrease in second-quarter production. Coupled with a 1.6% decline in the first quarter, that would fit the technical definition of a recession.
“GDPNow has a strong track record, and we get closer to a July 28 release [of the initial Q2 GDP estimate] “It’s about as accurate as it gets,” wrote Nicolas Kolas, co-founder of Datatrack Research.
The tracker took a sharp drop from its final estimate of 0.3% growth on June 27. Showing this week’s figures Further weakness in consumer spending And inflation-adjusted domestic investment prompted cuts that plunged the April-to-June period into negative territory.
There’s been a big change in the quarter rising interest rates, In an effort to curb rising inflation, the Fed has raised its benchmark lending rate by 1.5 percent since March, with more increases expected for the remainder of the year and perhaps in 2023.
Fed officials have expressed optimism that they will be able to contain inflation without sending the economy into recession. However, the chairman Jerome Powell said earlier this week reduce inflation Now the work is of paramount importance.
on one 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 tackle the rising cost of living.
He said he would tell the public, “We fully understand and appreciate the pain of people dealing with high inflation, that we have the tools and resolve to use them to address it, and that we Commit to it and will succeed in bringing inflation down to 2%. There is likely to be some pain in the process, but even worse pain will come from overcoming this high inflation and allowing it to persist.”
Whether that turns into a recession is unknown. The National Bureau of Economic Research, the official arbiter of recession and expansion, notes negative growth for two consecutive quarters. no need for recession to be declared. However, since World War II there has been no instance where the US has contracted for consecutive quarters and not been in recession.
To be sure, this tracker can be volatile and swing with every data release. However, Kolas said the GDPNow model becomes more accurate as the quarter progresses.
“The model’s long-standing track record is excellent,” he said. “Since the Atlanta Fed first began running the model in 2011, its average error has been just -0.3 points. From 2011 to 2019 (excluding the economic instability surrounding the pandemic), its tracking error average was zero.”
He further added that US Treasury yields have noted slow growth prospects, having declined significantly over the past two weeks.
“Shares have taken no rest from the recent decline in yields as they appear in the GDPNow data to illustrate a single issue: a US economy that is rapidly cooling down,” Kolas said.
–This story has been updated to reflect the downward revision Friday afternoon from the Atlanta Fed,