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Thursday, February 2, 2023

New Fed Study Points to Rising Risk of US Recession

by Michael S. Darby

Nuevanew yorkDecember 30 – More than half of the 50 US states are showing signs of slowing economic activity, crossing a critical threshold that often signals a recession, according to a new report from the Federal Reserve Bank of St. .

The report released on Wednesday followed the San Francisco Federal Reserve’s another report earlier this week, in which the US economy could enter a recession anytime in the coming months.

The St. Louis Fed noted in its report that if 26 states reported a decline in activity within their borders, it provides “reasonable confidence” that the entire country will be in recession.

At this time, 27 states reported a decline in activity in October, according to data from the Philadelphia Federal Reserve. This number is high enough to point to an impending recession, although it is lower than numbers that have been seen before other recessions. The authors noted that 35 states experienced declines before a brief, sharp downturn in the spring of 2020, for example.

Meanwhile, a report from the San Francisco Federal Reserve released Tuesday said changes in the unemployment rate could also signal a recession, in a signal that provides more proximate predictive value than the yield curve. , which is being closely monitored.

The authors of the study say that the unemployment rate tends to decrease and begin to increase before a recession, following a very reliable pattern. When this change occurs, according to the article, the unemployment rate signals the start of a recession in about eight months.

The paper acknowledges that its findings are similar to the Sahm rule, named after former Federal Reserve economist Claudia Sahm, a pioneer in the work linking rising unemployment rates to economic downturns. The San Francisco Fed’s research, authored by bank economist Thomas Mertens, said its innovation included making changes in the unemployment rate a forward-looking indicator.

Unlike state data from the St. Louis Fed, which leans toward bearish projections, the US unemployment rate has been fairly stable so far, and after hitting a low of 3.5% in September, it climbed to 3.7% in both October and November. But remained

The San Francisco Fed document noted that the Fed, in its December forecasts, sees the unemployment rate rising next year amid its campaign of aggressive rate hikes aimed at cooling high levels of inflation. In 2023, the Federal Reserve expects the unemployment rate to rise to 4.6% in a year with modest global growth.

If the Fed’s forecasts hold true, “such an increase would trigger recessionary predictions based on the unemployment rate,” the document said. “Under this view, low unemployment may lead to a higher probability of recession when the unemployment rate is expected to rise.”

Tim Dew, Chief Economist sgh Macro Advisors believes that for the Federal Reserve to achieve what it wants on the inflation front, the economy will probably “lose about two million jobs, which would mean a recession like in 1991 or 2001.”

Concerns about the possibility of the economy slipping into recession have been heightened by the Federal Reserve’s crackdown on inflation. Many critics argue that the central bank is focusing too much on inflation and not enough on keeping Americans employed. Central bank officials counter that without a return to price stability, the economy will struggle to reach its full potential.

In addition, at the press conference after the last meeting of the Federal Open Market Committee (FOMCEarlier this month, central bank leader Jerome Powell said he did not see the Fed’s current outlook as a recession prediction, given expectations that growth would remain positive. But he said much uncertainty remains.

“I don’t think anybody knows whether we’re going to have a recession, and if we do, whether it’ll be deep. You just can’t tell,” Powell said.

World Nation News Desk
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