The possibility of a recession in the US has been a topic of discussion this week. Despite the current resilient state of the economy, some experts are growing concerned that the strong job market and steady growth in consumer spending could lead to increased Federal Reserve interest rate hikes, ultimately increasing the chances of a harder landing for the economy.
However, opinions on the likelihood of a recession are varied. Steve Blitz, chief US economist at TD Lombard, expressed frustration that some economists are less worried about a recession. In his note to clients, he emphasized that while the stock market might be experiencing a “daydream,” the risk of a recession is still very real.
Lawmakers have not made addressing this issue a priority this week. Fed Chair Jerome Powell only brought up the word “recession” once during his testimony to the Senate Banking Committee on Thursday – and that was in reference to the 2008 financial crisis.
Treasury Secretary Janet Yellen did mention the possibility of a recession during an interview with Bloomberg News on Friday. While she acknowledged that the chance of a recession has decreased, she stressed that it is still a risk due to the tightening policy of the Federal Reserve.
Economic Indicator Continues to be Weak
In spite of significant efforts to avoid a recession, the economic indicator that signals advance warnings still remains weak. The Leading Economic Index recorded a 0.7% decline in May, which marked its fourteenth monthly decline. This reading continues to point to a potential recession either later this year or within the first half of 2024.
Commentary on Recession This Week
Several experts shared their thoughts on the topic of recession this week:
Stephen Innes, the managing partner of SPI Asset Management, called out that “Risk markets are struggling with inverted yields across a wide berth of sovereign curves as global recession concerns are back in the main thanks to a hawkish central bank policy that may have to inflict some economic pain to reign in core inflation.”
Citigroup CEO, Jane Foster noted, “We are definitely seeing a lot of signs of softening. But I’m not sitting here stressed about this, because the consumers entering whatever this slowdown is are in good health. The corporate client is in very good health, on their balance sheets. There’s a handful of banks that were mismanaged, but largely, banks are in very strong health. So the typical amplifiers of a recession just aren’t in place.”
Andrew Hunter, the deputy chief economist at Capital Economics, indicated that “Easing financial conditions, improving consumer sentiment and the stabilization in housing suggest that the risks of an imminent recession have eased slightly. Nonetheless, our tracking models imply that an economic contraction is highly likely later this year.”