Is the US economy on the verge of a downturn? Yes, according to the Fed's GDP tracker. - Net - Indir

Is the US economy on the verge of a downturn? Yes, according to the Fed’s GDP tracker.

As the Federal Reserve seeks to contain the worst inflation in almost four decades, Wall Street is on the lookout for indicators of an impending economic slump, and one indicator suggested a dip may be on the way this week.

The Atlanta Federal Reserve Bank’s carefully watched indicator implies the economy may be on the verge of a second-quarter decrease in gross domestic product, the broadest measure of goods and services generated in a nation. The economy expanded at an annualized rate of barely 0.9 percent in the spring, according to the GDPNow tracker, a sharp drop from the prior estimate of 1.3 percent on June 1.

SURGING INFLATION AND HOW THE FEDERAL RESERVE MISSED THE MARK

According to the National Bureau of Economic Research, which records downturns, recessions are formally defined as two consecutive quarters of negative economic growth and are marked by high unemployment, low or negative GDP growth, declining income, and sluggish retail sales.

The pace of economic growth in the United States is already slowing: Last month, the Bureau of Labor Statistics revealed that the economy unexpectedly dropped by 1.5 percent in the first quarter of this year, the worst performance since the spring of 2020, when the economy was still in the throes of the COVID-induced recession.

Should the economy contract in the second quarter, it may fulfill the technical conditions for a recession, but the official arbitrator, the National Bureau of Economic Research, may not certify it right once.

As the Federal Reserve moves to aggressively tighten monetary policy in order to cool consumer demand and bring inflation back down to its target of 2%, a growing number of economists and Wall Street firms, including Bank of America, Deutsche Bank, and Wells Fargo, are predicting a recession within the next two years.

As it shifts into full inflation-fighting gear, the Fed hopes to accomplish the rarest of economic feats: chilling consumer demand enough to keep prices from increasing but not crushing it to the point of putting the nation into recession. Although Fed officials want to achieve that elusive sweet spot — dubbed a “soft landing” — history suggests that the US central bank often fails to thread the needle between tightening policy and maintaining economic growth.

As inflation continues around a 40-year high, the Fed has already decided to raise the short-term interest rate by 50 basis points and has suggested that comparable rises are on the table at forthcoming sessions. Increased interest rates lead to higher charges on consumer and commercial loans, slowing the economy by causing businesses to cut down on expenditure.

In recent public forums, Fed Chairman Jerome Powell reiterated that stance, promising that the Fed would hike rates as high as necessary to calm prices, stoking fears of a central bank-induced recession.

“What we need to see is inflation falling down in a clear and persuasive manner, and we’ll keep pushing until we see that,” he said at a Wall Street Journal live event last month. “We won’t hesitate to go beyond commonly acknowledged levels of neutral if it means going beyond popularly understood levels of neutral.”

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