Posted Date: 20/06/2018
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The storm is coming? U.S. economy has sounded a recession alarm

U.S. economy has sounded a recession alarm

U.S. economy has sounded a recession alarm

Economists believe that the current low unemployment rate and rising inflation rate in the United States will induce the Fed to raise interest rates to cool the overheated economy. This will frustrate investor and consumer confidence and trigger the US economy into recession.

A recent survey by the National Business Economic Association (NABE) was surprising. Half of the economists surveyed believe that the US economy will fall into recession from the end of 2019 to the beginning of 2020, and two-thirds of economists predict that the US economy will decline before the end of 2020.

A number of economic indicators show that the current U.S. economy is "in full swing." For example, the unemployment rate in May was 3.8%, the lowest in 18 years; wage compensation is expected to increase by 3% during the year; GDP growth may once again touch 3% higher this year. This series of economic data shows that the U.S. economy is in the “best state” since the international financial crisis and is the second longest economic growth cycle in U.S. history. However, economists were not fooled by the appearances. Instead, they predicted that the storm was imminent on a bright day and saw signs of a recession during the economic boom.

JP Morgan economist Jesse Eddington pointed out that the recession generally stems from the sudden outburst of pessimism leading consumers and businesses to cut back on spending. This is not the case with many economic crises in the history of the United States. For example, the Internet bubble at the beginning of this century and the subprime crisis in 2007 all originated from the pessimistic expectations of all parties concerned. Economists believe that the current low unemployment rate and rising inflation rate in the United States will induce the Fed to raise interest rates to cool the overheated economy. This will frustrate investor and consumer confidence and trigger the US economy into recession.

The NABE findings are not alarmist. At present, the United States economy is indeed suffering from a lot of problems and is vulnerable to economic recession. The first is a higher level of inflation. At present, the low unemployment rate and the high salary are indeed a good thing for the employed, but not necessarily for the enterprise. Employers are forced to increase their industry and service prices in order to pay high-paying compensation, which will make the current US 1.8% inflation rate easily exceed the Fed's 2% target. This result will in turn stimulate the Fed to accelerate the pace of raising interest rates, from the previous forecast of three times each year to the next two years to 4 times. It is not difficult to see that higher interest rates and inflation levels increase the cost of borrowing for consumers and businesses, and curb housing sales, household expenses, and business investment. With the implementation of the tax reform by the Trump administration, the federal government’s revenue and fiscal deficits will increase, which will further promote the Fed’s interest rate increase.

U.S. economy has sounded a recession alarm


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