Barclays Delays Call for US Recession Until End of 2023
Barclays Delays Call for US Recession,Despite the Fed’s continued rate hikes and the Federal Reserve’s continued inversion of the 2-year and 10-year yields, Barclays has delayed calling for a US recession until 2023. The reason for this is the inability of US corporate profit margins to continue rising in the face of a rising US unemployment rate. It is also the case that household savings have accumulated to an unprecedented level, amounting to nearly nine percent of US GDP. Despite this, many in the financial community expect rate hikes to continue until at least the end of the year.
Global consumer prices are averaging 6.6% this year compared to 3.2% last year
Getting consumer prices down is important heading into the holiday shopping season. A survey by Clever Real Estate showed that one in three Americans said they planned to cut back on spending because of higher prices.
The Consumer Price Index, which is based on data from 100,000 price survey points across 500 cities, shows that global consumer prices increased by 6.6% over the past year. This was up from 3.2% in the same period last year.
There are a variety of reasons for the increased prices. The cost of gasoline has increased by 48.7 percent over the past year, while energy prices have increased by 15.4 percent. Some experts argue that high prices are a result of strong consumer demand. However, the Fed has made little progress in cooling off price spikes.
US corporate profit margins are likely to start falling in 2023
Despite the continued growth of the US economy, profits are still lagging behind the competition. Companies are still having trouble recruiting and retaining workers. Moreover, the economy is running at a faster clip than the Fed would like. That has led to a spike in borrowing costs, which has a pronounced effect on corporate profits.
Despite the recent surge in corporate profit margins, a recent study reveals that a few sectors may experience a downturn in the first quarter of the year. Despite the best efforts of companies to improve their bottom line, the economy remains on the verge of a recession.
The big question is how long will it take before the US economy rebounds? Aside from the specter of a recession, there is another factor weighing heavily on corporate earnings – the strength of the US dollar. The currency has jumped 20% in the last year, which adds to the overall economic pressures.
Inversion of 10-year and 2-year yields has preceded a recession
Historically, an inverted yield curve has been a harbinger of an economic recession in the US. However, not all inversions have preceded recessions. Typically, an inverted yield curve is a signal that a recession will come in the next six to 24 months.
If the 10-year Treasury yield exceeds the 2-year Treasury yield, the two yields will invert. The two-to-ten year segment of the yield curve inverted late March and again on July 6. However, this is not a definite recessionary indicator.
In recent years, economists and market analysts have used an inverted yield curve to forecast recessions. In general, an inverted yield curve has been associated with economic downturns in the U.S. For more than 50 years, an inverted yield curve has preceded each recession.
U.S. households have accumulated $2.2 trillion (9% of GDP) of excess savings since the start of the pandemic
Continuing increases in interest rates have led to a more tense financial climate. This has led to a reduction in risk-taking at the margin. However, recent market intelligence suggests that banks are reassessing their risk appetites and this could lead to further tightening of credit conditions.
In the UK, the government has announced a package of support measures to help households get by in the next year, such as the cost of living support package. This should help to relieve pressure on household finances in the short term and will be of benefit to the wider economy in the long term. However, this is not enough to offset the impact of higher interest rates on household finances.
Market participants expect rate hikes to continue until at least the end of next year
Traders and market participants expect the Federal Reserve to hike interest rates by 75 bps at its two-day meeting on Tuesday. Most market participants expect the Fed to keep hiking interest rates in the coming months.
The Fed has raised interest rates by 0.75 percentage points in each of the last four meetings. The Fed also modified the monetary policy framework to better influence inflation expectations.
The Fed has kept its 2 percent inflation target intact. It has also opted to target the PCE index, rather than the CPI. The PCE index is considered more stable. Its core prices have been above the Fed’s 2% target since April 2021.
The Fed will release its interest rate decision at 2:00 pm Eastern on Tuesday. During the meeting, members of the Fed’s rate-setting committee will discuss the outlook for the economy.