Monday, May 29, 2023
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New Fed study shows U.S. recession risk rising

By Michael S. Derby

NEW YORK (Reuters) – More than half of U.S. 35 states show economic slowdown In a sign, the latest research from the St. Louis Federal Reserve Bank said activity had breached a key threshold that usually signals an imminent recession.

Wednesday’s report follows another report from the San Francisco Fed earlier this week that also delved into where the U.S. economy may be at some point in the coming months. The rising prospect of a recession at this time.

In its report, the St.Louis Fed said it provided “reasonable confidence” that the overall The country will fall into recession.

Now, the bank said economic activity fell in October as measured by Philadelphia Fed data, which tracks the performance of states 35. That’s enough to suggest a recession is looming, while being lower than some other pre-recession numbers. The authors point out that, for example, the state of 35 experienced a recession before a short but severe recession in the spring of 1991.

Meanwhile, a report from the San Francisco Federal Reserve Bank on Tuesday noted that changes in the unemployment rate could also signal an imminent recession, a signal that provides more near-term forecasts than closely watched indicators Value Bond Market Yield Curve.

The paper’s authors say that unemployment bottoms out and starts to rise before a recession is a highly reliable pattern. When that shift occurs, the unemployment rate signals the onset of a recession in about eight months, the paper said.

The newspaper acknowledged that its findings are similar to the Sahm rule named by former Fed economist Claudia Sahm, who pioneered the link between rising unemployment and recession work. The San Francisco Fed study, written by bank economist Thomas Mertens, said its innovation was to make changes in the unemployment rate a forward-looking indicator.

Unlike the St.Louis Fed data, which leaned toward recession forecasts, the US unemployment rate has held fairly steady so far, holding at 3.7% in October and November after bottoming out at 3.5% in September.

The San Francisco Fed document noted that as of its December forecast, the Fed expects unemployment to rise next year because of its aggressive interest rate hike campaign aimed at cooling high inflation. In 2023, the Fed sees unemployment jumping to 4.6% in a year, while it sees overall growth as modest.

If the Fed’s forecast comes through, “such an increase would trigger recession forecasts based on the unemployment rate,” the paper said. “According to this view, when unemployment is expected to rise, low unemployment increases the likelihood of a recession,” said Tim Duy, chief economist at SGH Macro Advisors, To achieve what the Fed wants in terms of inflation, the economy could “lose about 2 million jobs and it would be a war like 1991 or 2001”

The Fed’s tough approach to inflation has raised concerns about the prospect of a recession. Many critics argue that the central bank focuses too much on inflation and not enough on keeping Americans employed. Central bank officials countered that the economy would struggle to reach its full potential if prices did not return to stability.

Furthermore, in a news conference after the most recent FOMC meeting earlier this month, Central Bank Governor Jerome Powell said, He doesn’t think the current Fed outlook is a recession forecast given that growth is expected to remain positive. But he added that there were still many uncertainties.

“I don’t think anyone knows whether we’re going to have a recession, and if so, whether it’s going to be a bad recession. It’s just, it’s unknowable,” Powell said.



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