Federal Funds Rate US and Fears of Recession

Federal Funds Rate US and Fears of Recession

By Neofytous Hadjineofytou

Today, the federal reserve will announce their decision to increase the current interest rate in
the US to 4.75% from a previous 4.5%. This is mainly because of battling and subduing inflation.
Even though the last inflation measurement showed a decrease from 7.1% to 6.5%, this was not
enough, the Fed’s target is to bring inflation back to 2%.

The last GDP data reading for the last quarter of 2022 showed a growth of 2.9%, and the
previous a 3.2%, enough to skip the textbook definition of recession. However, there are reasons
to believe, according to some economists, that a mild recession will occur in mid 2023.

The factors that lead to recession are:
1 – Low consumer confidence
2 – High interest rates
3 – Asset bubbles Burst

Of all the reasons above NONE can be linked with the current US economy. The consumer
confidence did slow down, but it is still satisfactory, interest rates are not that high and of course
the Stock market is not overvalued which in return can lead to a bubble burst.

So, what causes the fear of recession or even speculation? A few experts argue the point that
constant increase of the interest rate might decrease spending significantly, which in return will
decrease investments and a major headache for the labor market.

The US markets, nevertheless, as of now, showed resilience, Consumers steer clear from buying
a house, but continued buying a car and electrical appliances. Also, recent layoffs did occur from
big companies such as Microsoft, Amazon and Google, however previous labor market readings
show satisfactory numbers.

Furthermore, the forecast for today’s JOLTS Job opening as well as for the upcoming Friday’s NFP
are promising.

On the other hand, regarding the stock market, the Dow, S&P 500, and Nasdaq showed steady
gains for the Month of January.

Taking all the above into consideration, if the US enters a state of recession, it would be mild and
easily recoverable, it should only last 2 quarters- 6 months, unlike the last recession that lasted
18 months.

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