The Federal Reserve aggressively tightened monetary policy to combat excessive inflation during the second quarter of the United States economy, which may have contributed to financial market concerns that the US was already in a recession.
According to the commerce department’s advance estimate of GDP released on Thursday, the country’s gross domestic product decreased at an annualized rate of 0.9 percent last quarter. GDP was expected to grow by 0.5 percent, according to economists surveyed by Reuters.
Estimates ranged from a contraction rate of 2.1 percent to a growth rate of 2 percent. The first quarter saw a 1.6 percent rate of economic contraction.
The conventional definition of a recession is when the GDP declines for two consecutive quarters.
Recessions are defined by the National Bureau of Economic Research as “a considerable decrease in economic activity distributed across the economy, lasting more than a few months, normally observable in production, employment, real income, and other indicators,” according to their definition.
In the first half of the year, job creation averaged 456,700 per month, which is leading to significant salary rise. However, the dangers of a downturn have grown. While business and consumer morale have worsened recently, homebuilding and home sales have declined.
In an effort to soothe people ahead of the midterm elections on November 8, which will determine whether President Joe Biden’s Democratic Party retains control of the US Congress, the White House is vehemently combating the recession talk.
On Thursday, Janet Yellen, the secretary of the Treasury, will attend a press conference to “address the status of the US economy.” Although the job market is still tight, there are indications that it is waning.
Initial claims for state unemployment benefits fell by 5,000 to a seasonally adjusted 256,000 for the week ended July 23 according to a second report released by the labour department on Thursday. Reuters polled economists, who predicted 253,000 applications for the most recent week.
The number of new unemployment claims is still below the 270,000 to 350,000 mark, which economists believe would indicate a rise in the unemployment rate. However, a slowdown in economic growth might persuade the Fed to hold off on significant interest rate increases. Much would depend on how inflation would develop, which is currently running well above the US central bank’s 2 percent target.
The Federal Reserve increased its policy rate by another 0.75% on Wednesday, bringing the total increase in interest rates since March to 225 basis points. Jerome Powell, the chair of the Fed, acknowledged the waning economic activity brought on by tighter monetary policy.