February 22, 2024

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New research from the Federal Reserve points to a higher risk of a recession in the United States

New research from the Federal Reserve points to a higher risk of a recession in the United States

NEW YORK (Reuters) – More than half of the 50 U.S. states are showing signs of slowing economic activity, violating a key threshold that often indicates a recession is imminent, according to new research from Saint John’s. Lewis Fed report said.

The report was released on Wednesday, on the heels of another report from the San Francisco Federal Reserve earlier in the week that also touched on the growing possibility that the US economy could fall into recession at some point in the coming months.

st. In his report, Louis Fede said that if 26 states have tiered activity within their borders, it displays “Reasonable trustThat the nation as a whole would fall into stagnation.

For now, the bank said that as measured by Philadelphia federal data Tracking the performance of individual countries, there were 27 declining activities in October. This suffices to indicate that a downturn is looming, with numbers seen before some other recessions not being reached. The authors note that 35 countries experienced declines before the short, sharp recession seen in spring 2020, for example.

Meanwhile, the San Francisco Fed report, released on Tuesday, noted that Changes in the unemployment rate It could also indicate that deflation is on the way, in a sign offering more predictive value in the near term than the closely watched bond market yield curve.

The paper’s authors said the unemployment rate bottoms out and begins to rise before a recession in a very reliable pattern. When this shift occurs, the newspaper said, the unemployment rate signals the onset of a recession in about eight months.

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The paper acknowledged that its findings are similar to those of Sahm’s rule, named after former Fed economist Claudia Sahm, who Pioneering work linking high unemployment to an economic downturn. The San Francisco Fed’s research, written by the bank’s economist Thomas Mertens, said its innovation was to make the change in the unemployment rate a forward-looking indicator.

Unlike st. Lewis Fed data trending towards a recession forecast The US unemployment rate has remained fairly stable so far, and after bottoming out at 3.5% in September, it held steady at 3.7% in both October and November.

The San Francisco Fed paper noted that the Fed, in line with its December projections, sees the unemployment rate rising next year amid its campaign of aggressive rate hikes aimed at calming soaring levels of inflation. In 2023, see the Fed The unemployment rate rose to 4.6%. In a year of only modest levels of overall growth.

If the Fed’s projections come true, the paper said, “such an increase would lead to an expectation of a recession dependent on the unemployment rate.” β€œIn this view, a decline in the unemployment rate could increase the likelihood of a recession as the unemployment rate is expected to rise.”

Tim Dowie, chief economist at SGH Macro Advisors, said he believes that to achieve what the Fed wants in terms of inflation, the economy is likely to lose nearly 2 million jobs, which would be a recession like in 1991 or 2001.

Concern about the possibility of the economy entering a recession was prompted by the Fed’s aggressive action 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 responded by saying that without a return to price stability, the economy would struggle to achieve its full potential.

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Moreover, at the press conference following the recent meeting of the Federal Open Market Committee earlier this month, Central Bank Chairman Jerome Powell said that he does not view the Fed’s current outlook as a recession prediction given that projected growth will remain positive. But he added that much remains uncertain.

β€œI don’t think anyone knows whether or not we’re going to have a recession, and if we do, whether or not it’s going to be a deep recession,” Powell said.

(Reporting by Michael S Derby). Editing by Dan Burns and Aurora Ellis

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