Expectations of US economic recession rising inflation | Data | US
Due to the sustained high level of inflation in the United States, the negative effects of interest rate hikes have accelerated, leading to renewed expectations of an economic recession in the United States. Although the Federal Reserve still insists on predicting slow economic growth, the stagnation or decline in growth in more than half of the regions, slowdown in transportation industry activity, and sluggish banking industry have already reflected that the outlook for US economic growth is not optimistic.
The latest inflation data in the United States has shown a significant decline, causing high sentiment among market institutions. However, the differences among various parties regarding the inflation outlook have not been resolved as a result, but have further intensified. Due to the sustained high level of inflation, the negative effects of interest rate hikes have accelerated, leading to renewed expectations of a recession in the US economy.
According to data from the US Department of Labor, the US Consumer Price Index rose 3% year-on-year in June this year, a significant decline from May's 4%, and this data has also dropped to the lowest level since March 2021. The core CPI in June increased by 4.8% year-on-year, lower than the expected 5%. The data downturn has somewhat relieved the US market, which has been worried about continuing to raise interest rates, as the US stock index climbed and drove global stock markets up. US bond yields and the US dollar index also fell in response. An analysis uses "cheering and cheering" to describe the market's current mentality, stating that the June drop in US inflation to the lowest level in over two years "increases the possibility that the Federal Reserve will stop raising interest rates after a possible rate hike in July" and "the rate hike cycle is coming to an end".
By contrast, the Federal Reserve is much more cautious in its stance on the inflation outlook. The heads of the Federal Reserve of San Francisco, the Federal Reserve of Atlanta, and the Federal Reserve of New York spoke out last week, stating that "the work of raising their short-term interest rate targets has not been completed" and that "further interest rate hikes may be needed to reduce still high inflation.". Some market institutions also hold a similar view. As the Bridgewater Fund warned on July 14th, the core CPI data in the United States may bottom out and rebound between 3.5% and 4%, pushing the Federal Reserve to further tighten monetary policy. "The fight against inflation in the United States is far from over.".
The divergence surrounding the inflation outlook in the United States has been ongoing for some time, and there have been several indicators pointing differently in recent important economic data. Although the CPI in June decreased year-on-year, it increased by 0.2% compared to May's 0.1% month on month; In the July Michigan Consumer Confidence Index released on July 14th, both long-term and short-term inflation expectations of consumers have slightly increased compared to June, which is inconsistent with the downward trend of the Labor Department's inflation data. Even more puzzling is that according to data from the US Energy Information Administration, there was a significant decline in residential, commercial, industrial, and transportation electricity consumption in the first quarter of this year. Some indicators, such as residential and work electricity consumption, saw significant declines, and this trend continued in April. However, data from the US Department of Commerce shows that the US economy grew at an annual rate of 2% in the first quarter. The significant deviation between electricity consumption data and economic growth rate has made the current state of the US economy uncertain.
The combined effects of the massive relief payments, extremely low tax rates, and ultra loose monetary policy issued by the US government during the pandemic, coupled with the impact of the Ukrainian crisis on energy and other sectors, have led to high inflation levels. Meanwhile, the inhibitory effect of the Federal Reserve's continuous aggressive interest rate hikes on economic growth is becoming increasingly evident. The warning tone for the US economic recession has been increasing recently.
On July 9th, US Treasury Secretary Yellen stated that it is "not entirely impossible" for the US economy to enter a recession due to high inflation. On July 12, Bill Gross, a well-known American bond investor, warned that the savings saved by American consumers during the COVID-19 epidemic were still about $500 billion, which was most likely to run out in the fourth quarter of this year, threatening to trigger an economic recession in the United States. On July 13th, American media reported that "consumers and businesses are feeling the pain of ultra aggressive interest rate hikes", with the default rates of car loans and credit cards constantly rising, and the default rates of high-yield bonds and loan markets also constantly rising. The US economy has entered a "default week". The cautious Federal Reserve also hinted at the prospect of an economic recession in its latest national economic survey report. According to the Brown Book, since May, out of the 12 regions where the Federal Reserve is located, five regions have reported slight or moderate growth in economic activity, five regions have reported no change, and two regions have reported slight or moderate decline. Among them, due to the continued weakness in loan activities, the banking industry is mostly in a downturn, while transportation activities in most regions have declined or remained unchanged from the previous report period of the Brown Book.
Although the Federal Reserve still insists on predicting slow economic growth, the stagnation or decline in growth in more than half of the regions, slowdown in transportation industry activity, and sluggish banking industry have already reflected that the outlook for US economic growth is not optimistic. In this situation, the Democratic government of the United States has been boasting about the so-called "Biden economy" for election benefits recently. However, a US poll shows that only 34% of Americans approve of Biden's approach to the economy. The American people, after all, are not very receptive.
