A recession is officially declared by the National Bureau of Economic Research.
(Photo: dpa)
Washington The American economy continues to weaken. Economic growth for the second quarter fell 0.9 percent, according to the first estimate of gross domestic product (GDP) released by the US Commerce Department on Thursday.
This is the second quarter in a row that growth has slowed. According to a technical definition, a recession has occurred.
A recession is officially declared by the National Bureau of Economic Research. And this group of economists looks at a lot more indicators than just GDP growth. They define a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Jerome Powell, head of the US Federal Reserve (Fed), also emphasized after the interest rate decision on Wednesday that the USA was not yet in a recession. The job market is too strong for that.
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Irrespective of this, the message of the estimate is clear, emphasizes capital market expert Mohamed El-Erian, who advises Allianz, among others. “We’re seeing an economy slowing down much faster than many thought,” he told CNBC.
The Fed raised interest rates again by three-quarters of a percentage point on Wednesday. This puts the interest rate in the range of 2.25 to 2.5 percent. Powell had promised further hikes, and “another large rate hike” at the upcoming meeting is also conceivable. This was the fourth rate hike this year.
Stock markets reacted positively to the interest rate hike
Nevertheless, inflation in the USA continued to rise – most recently to 9.1 percent. Powell stressed that the Fed is determined to bring inflation back to the 2% target. America’s top central banker has been criticized for months for being too hesitant in the fight against inflation.
>>Read here: Prices rise by 9.1 percent in the USA – inflation becomes a political problem
An intensive discussion has broken out about the future course of the central bank. The stock markets reacted surprisingly positively to the interest rate hikes on Wednesday. Optimists cited Powell’s announcement that interest rates could be around 3.5 percent by the end of the year – a little lower than many had expected.
The head of the Fed is not ruling out another rate hike.
(Photo: Reuters)
Independent capital markets consultant Ed Yardeni was optimistic. The S&P 500 stock index is now almost ten percent above the lows of June 16. The rally after Wednesday’s Fed meeting was due to broad expectations of the rate hike. Powell also continues to believe that the Fed could slow the US economy without causing a recession.
Yardeni sees another important reason for the strength of the American stock and bond markets: “While the rest of the world spirals out of control, the US becomes a safe haven for investors.”
However, other market observers such as Michael Schumacher, interest rate strategist at Wells Fargo, warn against overconfidence. Eventually, Powell may be forced to raise rates much higher to fight inflation.
More: The US Federal Reserve raises the key interest rate again significantly – Powell sees the Fed a long way from reaching its goal