U.S. economy might fall into recession. Inflation is high
The United States has avoided the economic recession thus far, though analysts feared that such an outcome was a real possibility. The prices are still high in the country, and the Federal Reserve hiked its interest rates several times to bring them down. While tightening is a good policy for achieving that end, maintaining high rates for prolonged periods has a negative effect on the economy. As a result, economists warned that if the Fed continued hiking, the U.S. would eventually plunge into recession.
The last batch of data came out strong, alleviating some of those fears. However, two U.S. regional banks have collapsed since then. In addition, the Federal Reserve decided to raise the rate by 25 points despite the failure in the banking sector.
On Monday, a majority of economists agreed that the United States would likely enter a recession in 2023. They also added that the country would have to fight high inflation during the following year. A semiannual survey showed that analysts have little confidence that America will avoid a downfall in the coming months.
Furthermore, the National Association for Business Economics Policy Survey showed that most economists expect headline inflation to remain above 4% this year. That is higher than the central bank’s target of 2%. However, the organization conducted this survey at the beginning of March.
How much did the Fed increase rates?
The U.S. central bank has hiked rates by 4.75% to bring down the soaring inflation. The latter hit its highest level in decades in 2022. After the Fed’s aggressive tightening, price rises slowed a bit. Inflation lowered to an annual level of 6.0% last month, which is still much higher than desired.
During the previous survey, 19% of respondents had said the economy was already in recession. However, now only 5% of respondents reiterated such a statement. That is good news, at least. It seems the market sentiment is improving.