China News Service, July 30 (Reporter Meng Xiangjun) On July 28, local time, the initial value of the actual annualized quarterly rate of U.S. gross domestic product (GDP) in the second quarter was announced, recording -0.9%, the second consecutive quarter. shrink.
Many analysts believe that the US economy has fallen into a "technical recession".
In the past few days, US President Biden, Treasury Secretary Yellen, Federal Reserve Chairman Powell and others have come forward to "fire the fire" to stabilize people's hearts and deny that the US economy is in recession.
But in the face of persistently high inflation, the American people who have suffered enough do not buy it.
The Federal Reserve just announced a 75 basis point rate hike on the 27th, the latest step in its fastest rate hike since 1981.
However, this rescue method has been used many times this year, and has been criticized for treating the symptoms rather than the root causes. Analysts believe that the Federal Reserve has committed at least four "mistakes". If it is not corrected in time, the United States will truly slide into recession.
US President Biden.
[Gloomy economic outlook? 】
In the first quarter of 2022, the U.S. GDP shrank by 1.6% year-on-year, and in the second quarter by 0.9%. From a statistical point of view, two consecutive quarters of GDP declines mean that the economy has fallen into a technical recession.
Public opinion is generally pessimistic.
Recently, the International Monetary Fund (IMF) lowered its forecast for U.S. economic growth in 2022 and 2023 to 2.3% and 1%, respectively.
This is the second time that the IMF has lowered this forecast recently, and it believes that the U.S. economic growth outlook has deteriorated.
Former U.S. Treasury Secretary Summers and former White House economist Laffer all believe that the United States is more likely to fall into recession, which is consistent with the predictions of economists interviewed by Reuters and the New York Times.
More than 50 percent of economists surveyed by the National Association for Business Economics predicted that the U.S. economy had at least a 25 percent chance of falling into recession within a year.
Data map: Citizens shopping in a shopping mall in San Francisco, California, USA.
Photo by China News Agency reporter Liu Guanguan
U.S. consumer confidence fell to a 16-month low of 98.7 in June, while consumer expectations fell to 66.4, the lowest since 2013.
There are other signs emerging.
The housing market, a key economic sector in the U.S., for example, is faltering, with home prices soaring and a dwindling supply of properties for sale.
Blackstone, the world's largest alternative asset manager, has warned that stubbornly high inflation is "sticky", especially in labor and housing markets, and will keep economic activity slowing down.
Foreign media also pointed out that the well-known economic recession indicator - the U.S. Treasury yield curve inverted, that is, the two-year Treasury bond yield is higher than the ten-year Treasury bond and other phenomena.
Looking at the experience of half a century, whenever the yield curve inverts, in as short as 6 months to as long as two years, the United States will almost have a recession.
Still, there's a lot of room for wiggle room, with forecasters who don't see a recession stressing that they may be overly optimistic, while forecasters who believe the economy will shrink believe that even a recession won't be that bad.
【The pains of life will continue】
The U.S. consumer price index (CPI) exploded again in June, reaching 9.1%, a record high in nearly 41 years.
Although there are views that the long-term inflation rate in the United States will decline, Cleveland Fed President Loretta pointed out that there is no convincing evidence that inflation has turned the corner.
Data map: FedEx employees sort out express packages.
The Beige Book released by the Federal Reserve recently pointed out that prices have soared across the board, eroding the disposable income of the American people, consumer demand has begun to slow, and business activities have begun to decline.
U.S. oil prices, while lower, are still about 46% higher than a year ago.
Even government officials admit that falling oil prices won't be enough to offset the rapid rise in rents and house prices.
In addition, food prices have skyrocketed by more than 10% in a year.
One red flag is that Americans are saving less.
For the first time since 2013, the country's personal savings rate fell below 6 percent, according to Commerce Department data.
On May 23, local time, a notice that "infant formula milk powder is out of stock" was posted on the vacant shelves of a large supermarket in New York, the United States.
Photo by China News Agency reporter Liao Pan
More than 1,000 miles from Wall Street, Mantz, president of Feeding Tampa Bay, a Florida-based food relief group, found that local food insecurity was on the rise again.
For about half a year, more and more people, including those with two or three jobs, have begun to queue up for relief meals.
Every week, Feeding Tampa Bay needs to provide about 1.65 million free meals, 400,000 more than before the pandemic.
The Federal Deposit Insurance Corporation estimated that there were 7.1 million "unbanked" households in the United States at the beginning of the outbreak.
They have exhausted their economic resources during the pandemic, living on low wages and spending only on necessities.
Such people are usually affected by high inflation earlier, recovery will take longer, and the pain will not end soon.
[Government tries to downplay the impact]
However, U.S. President Joe Biden and his economic advisers have tried to play down talk of a recession.
Data map: US dollar banknotes.
Photo by Li Jinlei of China News Service
Biden has previously admitted that U.S. inflation data has been "unacceptably high," but because of the strong employment data, he believes the U.S. economy will not fall into recession, "but from rapid growth to stable growth."
On the 28th, after the second-quarter GDP data was released, Biden re-emphasized that the Federal Reserve is taking action to reduce inflation, the economic slowdown is "not surprising", and the U.S. economy is "still on the right path."
U.S. Treasury Secretary Yellen also stood up to "fire the fire". She gave the same reasons as Biden, saying that the U.S. job market created 372,000 jobs in June, with good industrial production and loans, strong employment data and consumer The spending showed that the U.S. economy is not currently in a recession, but is in a "transition period of slowing down after rapid growth."
However, Yellen also suggested that current inflation is "too high" and she hopes the Fed's decision will help curb prices.
On July 27, local time, Fed Chairman Powell attended a press conference.
Photo by China News Agency reporter Sha Hanting
The pressure is on the Fed.
Federal Reserve Chairman Jerome Powell also denied that the U.S. economy is headed for a recession.
He believes that the current economy is likely to be in a stage where the data has not fully reflected the effect of the policy of raising interest rates and "shrinking the balance sheet".
But after releasing the "big move" to raise interest rates by 75 basis points, Powell also said that the Fed will avoid providing clear official guidance on curbing inflation.
Foreign media believe that this is the moment when the Fed's hawks have peaked, and then interest rate hikes will slow down.
But why is this an "unspeakable" question?
[Biden's "combination punch" is difficult to achieve? 】
The IBD/TIPP Economic Optimism Index shows that as many as 58% of the American people surveyed believe that the U.S. economy has entered a recession.
Only 19% of Americans believe their wages have kept pace with inflation, compared with 54% who say the opposite.
Biden, who has declared inflation the "source of existential pain" for Americans, has vowed to make tackling inflation his top priority in office.
He hit a set of "combo punches" to try to turn things around.
For example, working with allies to try to strengthen supply chain resilience, releasing more than 1 million barrels of oil per day from the Strategic Petroleum Reserve to stabilize oil prices.
Data map: Oil facilities in the Saudi coastal city of Jeddah.
Biden also continued to urge other oil producing countries to increase supply, not only considering easing sanctions on Venezuela in exchange for oil, but also going to Saudi Arabia to negotiate with Crown Prince Salman to increase supply, but to no avail.
Europe listened to the US's persuasion and gave up its dependence on Russian energy, which means that oil prices will rise on an annual basis.
With oil prices soaring, the Biden administration has proposed a price cap on Russian oil.
But this has not been widely recognized by "OPEC+" oil-producing countries and countries such as India, which is actively buying oil.
With many refineries temporarily closed due to a sharp drop in demand during the pandemic, oil prices will remain high due to insufficient capacity.
What's more, the Biden administration is also considering suspending federal taxes on gasoline, a move that could stimulate demand and push up prices.
In addition, the White House believes that the high concentration of the meat processing industry has pushed up prices, and once made efforts to rectify price gouging.
But two-thirds of economists interviewed believe that market concentration in the United States has increased across multiple industries over the years, but it has not led to an acceleration in inflation before.
Fed hikes rates, Powell vows not to capitulate to inflation.
Image source: Screenshot of Reuters report
In the end, Biden's "combination of punches" trick is almost only to let the Fed deal with inflation.
Voters, however, will not let any issues go lightly.
Some believe that the president has a lot of control over managing inflation, more than the Fed, Congress, or business giants; others believe that Biden's 2021 fiscal stimulus plan is causing the economy to overheat and prices to rise.
Their disappointment was beyond words.
The Pew Research Center, a U.S. think tank, pointed out that only 13% of U.S. adults believe that their country’s economic situation is “very good”, and 56% of respondents believe that the Biden administration’s policies have made the economic situation worse.
The poll found that Biden's approval ratings had recently reached the lowest point of his presidency, with only 39 percent of adults approving of his performance.
As the battle for the November midterm elections looms, the political threat to Biden and Democrats is growing.
[Federal Reserve commits "Four Mistakes"]
The Associated Press analyzed that the Fed is counting on the so-called "soft landing" ability to continuously raise borrowing rates to curb inflation.
Whether it is accelerating interest rate hikes or expanding the "shrinking balance sheet", it can indeed curb inflation locally, but critics believe that this will lead to higher costs for the production and economic sector, but will worsen inflation and accelerate the economy into stagflation.
Former Standard & Poor's global vice-chairman Schilder pointed out that the Fed is "almost planning a recession" in order to keep inflation at a level of about 2% of its stated target.
To achieve the goal, there are two ways, Scherder explained, one is to increase supply to meet demand, but due to the epidemic and geopolitical factors, supply chain problems are difficult to solve in the short term.
The other is to limit demand, which is the Fed raising interest rates.
If demand must be restrained to bring macroeconomic supply and demand into balance, this is by definition a "mild recession."
Federal Reserve Chairman Jerome Powell holds a news conference after the regular monetary policy meeting.
Photo by China News Agency reporter Sha Hanting
The Bloomberg article pointed out that the Federal Reserve "fell four times", resulting in one of the most serious policy mistakes in decades.
If it can't overcome these "mistakes" and "stubborn ailments" and regain its credibility, the stable days for investors are doomed to be short-lived.
↓↓
First, in terms of situation analysis, the world economic pattern has changed from insufficient aggregate demand for many years to insufficient aggregate supply, but the Fed's economic analysis model has not been reformed, and the old framework is still used.
This makes it difficult for the central bank to provide correct information and influence to economic entities, and not only fails to lead, but lags behind the market.
Second, in terms of forecasts, the U.S. economy has not only shown signs of weakness and is slipping toward the brink of recession in the past few quarters, but the Fed has made wrong predictions.
Economists, market analysts and even former Fed officials have accurately refuted the Fed's "unrealistic" judgment.
Third, the Fed must be more alert and flexible in its policy response.
After holding on to the wrong "transient" inflation judgment for a long time, it should quickly take more vigorous remedial action.
Fourth, the Fed must be more direct when it comes to external communications.
To borrow a phrase from former UK Chancellor of the Exchequer Sunak, it seems that central banks in developed countries are most likely to immerse themselves in “fairy tale economics”.
Improving communication methods is the most systemically important.
The Bloomberg article also stated that if the Fed is difficult to correct the above problems, it may not escape negative comments in later generations.
Because its policies can lead to several consequences, such as:
plunge the U.S. into an unnecessary recession;
undermined the stability of the global economy recovering from the epidemic;
fuelling debt pressures in vulnerable developing countries;
Exacerbating income inequality across countries...
As for whether the outside world thinks that the Fed is out of whack, we can wait until the third quarter to find out.
(Finish)