A new Fed study notes that the risk of a recession in the United States is increasing

A new Fed study notes that the risk of a recession in the United States is increasing
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NEW YORK, Dec 30 (Reuters) – Slightly more than half of the 50 U.S. states are showing signs of slowing economic activity, often exceeding key thresholds that signal an impending recession, St. This is stated in the report of the Federal Reserve Bank of Louis.

The report released on Wednesday followed another report from the San Francisco Fed earlier in the week, which examined the growing prospect that the US economy could enter a recession at some point in the coming months.

St. Louis Fed said in its report that if activity in 26 states is declining within their borders, it suggests “reasonable trust” he said that the nation as a whole will decline.

It was stated that it is currently being measured by the bank History of the Philadelphia Fed Tracking the performance of individual states, 27 states saw activity decline in October. That’s enough to point to an impending recession, while falling short of numbers seen before some other recessions. The authors noted, for example, that 35 states were in recession before the short and sharp decline observed in the spring of 2020.

Meanwhile, the San Francisco Fed observed this in a report released on Tuesday changes in the unemployment rate a closely-watched bond market may also suggest a downturn is on the way, in a signal that offers more near-term predictive value than the yield curve.

The authors of the paper said that the unemployment rate is falling and is beginning to move with a high degree of certainty on the verge of a recession. The newspaper writes that when this change occurs, the unemployment rate signals the beginning of a recession within about eight months.

The paper acknowledged that its findings are similar to the Sahm Rule, named for former Fed economist Claudia Sahm. the first job to link the increase in the unemployment rate to economic downturns. The San Francisco Fed study, written by bank economist Thomas Mertens, said the innovation is to make changes in the unemployment rate a forward-looking indicator.

Unlike St. Louis Fed state data moving towards a recession forecast, the U.S. unemployment rate has remained fairly steady so far, coming in at 3.7% in both October and November after a 3.5% level in September.

The San Francisco Fed paper noted that the Fed sees the unemployment rate rising next year, based on its December projections. aggressive rate hike campaign aimed at cooling high inflation. In 2023, the Fed sees the unemployment rate rose to 4.6% in a year that saw only modest levels of overall growth.

If the Fed’s forecast comes true, “such an increase would trigger a recessionary forecast based on the unemployment rate,” the paper said. “In this respect, low unemployment when the unemployment rate is expected to rise may increase the likelihood of a recession.”

Tim Duy, chief economist at SGH Macro Advisors, said he believes the economy would likely “lose about two million jobs, which would be a 1991 or 2001 recession” to achieve what the Fed wants on the inflation front.

Concern about the outlook for the economy declines It was driven by the Fed’s strong inflation measures. Many critics argue the central bank focuses too much on inflation and not enough on keeping Americans employed. Central bank officials have argued that without a return to price stability, the economy will struggle to meet its full potential.

Moreover, at a press conference after the most recent Federal Open Market Committee meeting earlier this month, central bank leader Jerome Powell said he did not see the Fed’s current outlook as recessionary, given that growth expectations would remain positive. But he added that it still remains unclear.

“I don’t think anybody knows if we’re going to have a recession, or if we do, if it’s going to be deep. It’s just not known,” Powell said.

Reporting by Michael S. Derby; Edited by Dan Burns and Aurora Ellis

Our standards: Thomson Reuters Trust Principles.

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