FX.co ★ Two negative quarters – not equal to a recession

Let's take a break from geopolitical complexities and return to the economy. If inflation and the Fed's monetary policy were the most important issues on the agenda a few months ago, more and more analysts are now placing the recession at the top of the list. It is because economic growth in the second quarter was again negative, although most experts anticipated growth of 0.5 to 0.6 percent after the dismal first quarter (-1.6 percent q/q). However, the reality turned out to be harsher, and the American economy had already entered a recession. However, the Federal Reserve, Jerome Powell, Janet Yellen, and Joe Biden take a different viewpoint.

First, state unanimously that the recession cannot be viewed solely in terms of GDP. A recession is characterized by a decline in the labor market, consumer spending, industrial production, and several other macroeconomic indicators. After a high surge in 2021, top US officials say there is currently only a little fall. Thus, it cannot be labeled a "recession." Second, the recession ought to be accompanied by widespread layoffs, business closures, and a decline in family incomes, none of which are now evident. In their statements, Jerome Powell and Janet Yellen highlighted that the labor market remains robust, and the unemployment rate is the lowest it has been in the last half-century. Currently, only the business activity and GDP indices are declining. Indicators of industrial production, orders for durable goods continue to rank first. It should also be highlighted that yearly GDP measures, not quarterly ones, decide the recession. Thus, it cannot be argued that the US economy has officially entered a recession, which typically lasts longer than two quarters.

Nevertheless, there are still the third and fourth quarters, and who claimed they would experience growth? Consequently, the yearly GDP indicator cannot be negative if this is the case. If the last two quarters also end in the red, neither the president of the United States, the head of the Federal Reserve nor the minister of finance will be able to refute the recession. In one way or another, the American economy has already set foot in this swamp. It remains to monitor macroeconomic indicators closely, but from our perspective, they will continue to deteriorate due to the Federal Reserve's aggressive monetary policy, which may bring the key rate to 4 percent this year. The tightening of monetary policy always harms economic development. Thus, if it were decreased in the first half of the year when the rate was not yet high, then it would have an even greater possibility of decreasing in the second half of the year when the rate would have risen substantially.