Topline
Despite the recent cooling, Federal Reserve Chairman Jerome Powell on Friday warned that economic growth would suffer. Powell) warns that growth will suffer, and fears of a looming recession escalate again as central banks work to ease decades of pressure — high inflation — leading to a sharp sell-off in stocks as a growing number of experts worry that even The recently strong job market may also soon start showing signs of weakness.
Most experts are not ready to declare a recession Coming, but Fed Chair Powell… [+] It has become increasingly cautious in warning of the economic consequences of higher interest rates.
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Key Facts
In Friday’s much-anticipated Jackson Hole speech, Powell hawkishly declared that the Fed would use its tools “vigorously” to fight inflation, warning to do so “Persistent periods of below-trend growth” are needed, which will “inflict some pain on households and businesses.”
Powell did not mention the possibility of a recession from Fed policy, but in emailed comments on Friday, Oanda analyst Ed Moya said the speech showed the Fed is “committed to implementing restrictive policies that will ultimately Throw the U.S. economy into recession. Recession” to lower inflation, which has remained near 40-year highs for most of the year.
“The Fed is changing the playbook,” Thornburg Investment Management Co-director Jeff Klingelhofer said, noting that the central bank has long supported markets with low interest rates and accommodative policy during the pandemic, but is now emphasizing price stability — shifting the focus as it did before the Great Recession.
Others agree: Cornerstone Wealth chief investment officer Cliff Hodge, Powell speech ‘clearly suggests’ Fed can risk recession Lower inflation and increase the likelihood of a recession next year.
On Friday afternoon, Goldman economists said the remarks did not convince them that Fed policy would become more aggressive, but risks remained “tended to the upside”; There is a one-in-three chance of a recession next year, but others, including Nomura, believe it will start later this year.
Labor Markets
Powell acknowledged on Friday that “there will be some weakness in the labor market as the Fed works to lower inflation. Despite widespread reports of layoffs and hiring freezes, the economy posted a revival in July. Impressive job growth, adding more than 500,000 jobs. In a report on Wednesday, Goldman Sachs economists expected the recent weakness to start to be reflected in upcoming reports, saying they expected job openings to only 10 percent. will “fall further.” According to PwC, about 50% of U.S. executives are considering or planning layoffs in the next 6 to 12 months.
Stock market
Stocks tumbled after Powell’s speech on Friday, up about 15% since the Fed’s June rate hike — when many investors concluded that the worst of the gains may be over “If the Fed is to raise rates before the U.S. enters a recession, the stock market needs to drop 20% to 30% from its previous peak,” said Chris Zaccarelli, chief investment officer at the Alliance of Independent Advisors. The S&P is down this year after climbing 21% last year.
Housing market
July new home sales fell well short of expectations, plunging nearly 13% to 2016, according to data released on Tuesday The lowest level since Jan. Last week, home builders and realtors declared the housing market in recession, as higher home prices and mortgage rates continue to marginalize potential buyers and push demand to levels not seen since the turn of the century. The lowest level.
Inflation
More good news on inflation was also not enough to quell investor concerns. According to data on Friday morning, the Federal Reserve The personal consumption expenditures price index, the most closely watched inflation gauge, cooled last month at the slowest pace in more than a year and far outperformed economists’ expectations.
Federal Reserve
The central bank has raised interest rates by 2.25 percentage points so far this year. Goldman Sachs said most of the rate hikes have passed and expects a 50 basis point hike in September and 25 basis points in November and December On Friday, however, Powell left the door open for another 75bps rate hike, and more aggressive activity is sure to disrupt the market.
Further reading
Fed’s Jackson Hole meeting: Powell warns of ‘restrictive’ policy needed for stock market slump ‘for a while’ after inflation (Forbes)
GDP flashes recession warning again Warning signal: Experts warn of worse future ahead ‘ (Forbes)
Recession Watch: Doesn’t seem imminent – but as Fed official warns ‘economy will slow’ , the housing market collapse intensifies (Forbes)
Bank of America warns of ‘textbook’ bear market rally, forecasts new stock market lows (Forbes)
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