Is the Fed pushing the US economy into recession, forced to raise rates at an accelerated pace in order to…
(Boursier.com) — Is the Fed plunging the American economy into recession, forced to raise its rates at an accelerated pace in order to counter inflation, at the highest of forty years ? The question needs to be asked. Elon Musk judged yesterday that the United States was probably already in recession. “These things pass and there will be boom times again,” Musk said at the Miami Beach ‘All In’ summit. “It will probably be difficult for, I don’t know, a year, maybe 12 to 18 months.”
While the US economy contracted 1.4% annualized in the first quarter, the weakness was mainly due to a record trade deficit. Demand measures – consumer spending and business investment in equipment – actually accelerated in early 2022. The Federal Reserve Bank of Atlanta’s GDPNow estimate currently indicates that the gross domestic product of the second quarter would increase at a rate of 1.8%, reports Bloomberg.
Recession fears have risen recently as the Federal Reserve tightens monetary policy to help quell inflation which is near its highest pace since the early 1980s. Still, the odds of a slowdown over the coming year currently stand at 30%, according to Bloomberg’s latest monthly survey of economists.
Mohamed A. El-Erian, ex-boss of Pimco, notes that the list is growing of former Fed officials pointing to the error of monetary policy and the initial reaction too slow. Ben Bernanke thus judged that it would have been necessary to act earlier in the face of inflation. El-Erian notes that the Fed currently thinks it can achieve a soft economic landing, but that it was already wrong in judging inflation transitory.
On the economic front on Wall Street today, retail sales for the month of April will be released at 2:30 p.m. (FactSet consensus +0.9% compared to the previous month, +0.3% excluding vehicles and +0.8% excluding vehicles and petrol). The Fed will unveil the industrial production figures for April at 3:15 p.m. (consensus +0.4% compared to the previous month, +0.3% for manufacturing production and 78.5% capacity utilization rate ). Inventories (consensus +1.9%) and business sales for the month of March will be revealed at 4 p.m. The National Association of Home Builders’ US housing market index for May will be released at 4 p.m. (consensus 75). Patrick Harker, Charles Evans, Loretta Mester and especially Jerome Powell of the Fed, will speak during the day.
Fed Chairman Powell speaks during a Wall Street Journal live event. It should confirm the Fed’s major focus on inflation. He is also expected to reiterate the Fed’s forecast for 50 basis point rate hikes over the next two meetings, a quick push to the neutral rate and the possibility for the central bank to push rates back into restrictive territory if it does. is justified. The market will likely be most interested in Powell’s view on the impact, if any, of the recent drop in risk assets. So far, Fed officials have expressed no concerns about the matter. They also expressed their desire to see a further tightening of financial conditions. Other topics of interest revolve around the size of the balance sheet and whether Powell has started to see signs that inflation may be peaking.
Goldman Sachs this weekend cut its forecast for US GDP for 2022 to 2.4% from 2.6% previously, with 2023 GDP now expected at 1.6% from a previous forecast of 2.2%. GS cites the tightening of financial conditions. A slowdown in growth could also reduce job offers and increase the unemployment rate, although the investment bank rejects the idea of too much deterioration. Tighter financial conditions are a drag on near-term consumer spending, with the recent 10-year low in consumer confidence suggesting this could continue into June. Consequently, GS cut its Q2 GDP estimate to 2.5% from 2.9% previously. Morgan Stanley, on the other hand, believes earnings growth is likely to slow going forward due to margin compression and slowing revenue growth.
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