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Economic Report Signals Slowdown amid Latest Fed Rate Hike

The US economy shrinks for the second quarter in a row as Gross Domestic Product (GDP) falls 0.9% from April-June 2022 while the Fed raises interest rates again.
Economic Report Signals Slowdown amid Latest Fed Rate Hike

The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending, reports The Wall Street Journal.

"We’re seeing a sharp and necessary deceleration rather than a recession," said David Mericle, chief U.S. economist at Goldman Sachs, adding that slower growth is needed to rebalance the economy’s supply and demand for goods and services, and cool wage growth and inflation.

U.S. GDP Fell at 0.9% Annual Rate Second Quarter; Recession Fears Loom Over Economy (The Wall Street Journal)

Excerpt from The Wall Street Journal: Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That followed a 1.6% pace of contraction in the first three months of 2022. The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output. Whether or not the U.S. is in a recession now, ING economist James Knightley said that a downturn is “really only a matter of time,” given pressure on American households from inflation, equity markets and "the housing downturn really gathering pace now," which he said "reinforces the feeling that it’s only a matter of time before we’re in a proper recession."
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In a related story, the Federal Reserve on Wednesday pulled the trigger on another supersized interest rate hike, ushering in an end to easy money policies in its bid to battle the worst inflation since Ronald Reagan’s presidency, writes Politico.

"We’re not trying to have a recession, and we don’t think we have to," Fed Chair Jerome Powell said at a press conference after the policymaking committee’s decision. But he acknowledged that the path to avoiding an economic contraction has "narrowed and may narrow further."

Powell warns that path to avoiding recession has 'narrowed' as Fed hikes rates (Politico)

Excerpt from Politico: Fed officials increased rates by three-quarters of a percentage point, bringing their main policy rate to its highest level since 2019. The central bank has signaled it will raise borrowing costs further throughout the year, which would make debt more expensive than at any time since the 2008 financial crisis. The move signals the central bank’s determination to do whatever it takes to kill the spike in inflation, despite warnings from critics such as Sen. Elizabeth Warren that the Fed is unnecessarily jeopardizing a healthy job market over price increases that are driven by factors outside its control.
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According to Reuters, the Federal Reserve said on Wednesday it would not flinch in its battle against the most intense breakout of inflation in the United States since the 1980s even if that means a "sustained period" of economic weakness and a slowing jobs market.

Fed jacks rates again, Powell vows no surrender in inflation battle (Reuters)

Excerpt from Reuters: As he explained the logic behind the stiffest interest rate increases in roughly four decades, Fed Chair Jerome Powell was peppered with questions about whether the U.S. economy was in or on the cusp of a recession - a notion he rejected because U.S. firms continue to hire in excess of 350,000 additional workers each month. "I do not think the U.S. is currently in a recession," he told reporters after the end of the U.S. central bank's latest policy meeting, citing an unemployment rate that is still near a half-century low and solid wage growth and job gains. "It doesn't make sense that the U.S. would be in recession."
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