The Atlanta Federal Reserve's economic growth tracking tool says the United States is in a recession.
According to CNBC, a majority of Wall Street economists believe there will be negative growth in the future but think it won't come until 2023.
But, the Atlanta Fed's GDPNow tracker, which follows economic data in real time and adjusts continually, sees quarter-two output shrinking by 2.1%; this, coupled with declines in the first quarter of 1.6%, would fit the technical definition of recession.
Nicholas Colas, the co-founder of DataTrek Research says GDPNow, "has a strong track record, and the closer we get to July 28's release [of the initial Q2 GDP estimate], the more accurate it becomes."
This week, the data showed further signs of less consumer spending, as well as weakness in inflation-adjusted domestic investment, which prompted the April-through-June period to enter into negative territory.
One major change in the quarter has been the rise in interest rates. In order to cut down on rising inflation, the Fed has increased its borrowing rate to 1.5% since March and is due to continue with more increases for the rest of the year and into 2023.
Still, Fed officials have remained optimistic that they'll be able to stave off a recession by taming inflation. Earlier this week, Chair Jerome Powell said bringing inflation down was his paramount concern.
While speaking at a panel discussion on the European Union's behalf, Powell was asked what he would tell the Americans about how long it would take for monetary policy to catch up to inflation.
Powell said he would tell the American public that "we fully understand and appreciate the pain people are going through dealing with higher inflation, that we have the tools to address that and the resolve to use them, and that we are committed to and will succeed in getting inflation down to 2%.
"The process is highly likely to involve some pain, but the worse pain would be from failing to address this high inflation and allowing it to become persistent."
The National Bureau of Economic Research, the official judge of recessions and expansions, mentions how two consecutive quarters of negative growth doesn't equate to a recession. But since World War II, every instance of the U.S. contracting in consecutive quarters has been followed by a recession.
And while the tracker can swing with every data release, Colas notes that the GDPNow model gets more precise as the quarter goes on.
"The model's long-run track record," he says, "is excellent. Since the Atlanta Fed first started running the model in 2011, its average error has been just -0.3 points. From 2011 to 2019 [excluding the economic volatility around the pandemic], its tracking error averaged zero."
"Stocks have taken no comfort from the recent decline in yields because they see the same issue portrayed in the GDPNow data: a U.S. economy that is rapidly cooling," he added.
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