New Fed research highlights rising risk of US recession – Reuters

New Fed research highlights rising risk of US recession - Reuters

NEW YORK, Dec. 30 (Reuters) – Just over half of the 50 states in the US are showing signs of slowing economic activity, crossing a key threshold that often signals a recession is on the way, new research from the National Institute of Health has found. report from the St. Louis Federal Reserve Bank. said.

That report, released Wednesday, followed another report from the San Francisco Fed earlier this week, which also addressed the rising prospect that the U.S. economy could slide into recession at some point in the coming months.

The St. Louis Fed said in its report that if 26 states have declining activity within their borders, that offers “reasonable confidencethat the nation as a whole will fall into a recession.

At the moment, the bank said that measured by Philadelphia Fed data when tracking the performance of individual states, 27 states had declining activity in October. That’s enough to point to an impending downturn while lagging behind the numbers seen prior to some other recessions. The authors noted that 35 states suffered declines ahead of the brief and sharp recession that occurred in spring 2020, for example.

Meanwhile, a San Francisco Fed report released Tuesday noted that changes in the unemployment rate could also be a signal that a downturn is imminent, in one that offers more short-term predictive value than the closely monitored bond market yield curve.

The authors of the paper said the unemployment rate is bottoming out and starting to move higher in a very reliable pattern leading up to the recession. When this shift occurs, the unemployment rate will signal the start of a recession in about eight months, the paper said.

The paper acknowledged that its findings are related to those of the Sahm Rule, named after former Fed economist Claudia Sahm, who pioneering work linked to a rise in the unemployment rate to economic setbacks. The San Francisco Fed study, written by banking economist Thomas Mertens, said the innovation is to make the change in the unemployment rate a forward-looking indicator.

Contrary to data from the St. Louis Fed that leans toward a recession forecast, the US unemployment rate has remained fairly stable so far, and after hitting a low of 3.5% in September, it remained stable in both October and November at 3.7%.

The San Francisco Fed newspaper noted that as of its December forecasts, the Fed sees the unemployment rate rise next year amid its campaign of aggressive rate hikes to cool high levels of inflation. In 2023, the Fed the unemployment rate rises to 4.6% in a year in which it sees only modest levels of overall growth.

If the Fed’s forecast comes true, “such an increase would trigger a recession forecast based on the unemployment rate,” the paper said. “Under this view, low unemployment can lead to an increased likelihood of a recession when unemployment is expected to rise.”

Tim Duy, 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 about two million jobs, which would be a recession like in 1991 or 2001.”

Concerns about the prospect of the economy entering a recession have been fueled by the Fed’s strong actions on inflation. Many critics argue that the central bank is focusing too much on inflation and not enough on keeping Americans in work. Central bank officials have countered that without a return to price stability, the economy will struggle to reach its full potential.

In addition, central bank leader Jerome Powell said at the press conference following the most recent Federal Open Market Committee meeting earlier this month that he did not see the Fed’s current outlook as a recession forecast, given that growth is expected to be positive. will stay. But he added that much remains uncertain.

“I don’t think anyone knows if we’re going to have a recession or not, and if so, whether it’s going to be a deep one or not. It’s just, it’s unknowable,” Powell said.

Reporting by Michael S. Derby; Edited by Dan Burns and Aurora Ellis

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