Although personal income increased last month and U.S. gross domestic product rose in the third quarter, financial industry experts are still concerned about a potential recession.
Back in May, attention-magnet billionaire Elon Musk said he thought the U.S. was already in a recession. According to a report this week in Bloomberg, some experts believe the Federal Reserve Bank’s interest rate hikes will be what finally pushes the U.S. into one in the near future.
Though The Fed is raising these rates to combat historic inflation, Economist Chris Thornberg of Beacon economics told Audacy’s “The Homestretch” podcast that the approach is “stupid.”
With high inflation and increasing interest rates, “the economy’s main engine – consumer spending – remains under pressure,” said Bloomberg. “A strong labor market and savings amassed over the course of the pandemic have so far provided Americans the wherewithal to keep spending.”
As of Thursday, The Fed’s rate hikes had pushed mortgage rates up to their highest point in two decades, which in turn has already caused the housing market to deteriorate. Even so, experts think rate hikes could continue.
“A return to economic growth in the third quarter obscures continued signs of a slowdown in components that provide a cleaner signal of momentum... The Fed is likely to view the weaker components as intended consequences of its tighter monetary policy, and not as reasons to back off the tightening cycle just yet,” said Andrew Husby and Eliza Winger, economists cited by Bloomberg.
In fact, the outlet reported that “Fed Chair Jerome Powell has said the central bank believes the U.S. will need both a period of below trend growth and some softening in labor market conditions to reach its inflation goal,” indicating that the bank’s goal is to see the economy stay flat or fall.
“While policymakers hope to avoid a recession, the Fed’s latest forecasts have the economy growing just 0.2% in 2022 and 1.2% in 2023,” Bloomberg said. During the first half of this year the economy did soften “but part of that weakness reflected drags from volatile categories like net exports and inventories,” the outlet explained.
While Bloomberg said low unemployment rates and low layoffs challenge the fears of a recession, executives aren’t convinced that they should stop worrying.
“The macro-environment indications of a recession are certainly increasing,” said John Greene, chief financial officer of Discover Financial Services during a Tuesday earnings call, according to Bloomberg.
“Short-term consumer sentiment and consumer demand are clearly reflective of a recessionary environment. While at the same time, input costs, which you would expect to come down in a recessionary environment, are still elevated,” said Marc Bitzer, chief executive officer of Whirlpool Corp., during an earnings call last Friday.
Gross domestic income statistics that will be released next month are expected to help the The National Bureau of Economic Research’s Business Cycle Dating Committee – the official arbiter of when business cycles start and end in the U.S. – make its call regarding a recession.
According to the White House, the cycle dating committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
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