The Federal Reserve’s key real-time model made to track the economic activity of the United States has turned negative, hinting that the country could already have entered a recession.
The widely watched measurement from the Atlanta Federal Reserve Bank, GDPNow gauge, showed on Thursday that real gross domestic product has dropped by 1.0% during the second quarter from April through June.
According to the preliminary reading, after the GDP contracted 1.6% in Q1, the second quarter was in a row of negative growth in the economy. However, reports confirmed that the official advance estimate of Q2 performance won’t be released for another month.
Analysts claimed that if the economy really shrinks in Q2, it would indicate that the economy has entered a recession, where two consecutive quarters of negative growth will meet but the official determination should come from the National Bureau of Economic Research (NBER).
Moreover, recent reports revealed that economists had been expecting an economic slowdown caused by the interest hikes that the Federal Reserve has implemented in response to the rising inflation.
On Wednesday, FED Chair Jerome Powell said that there was “some risk that policymakers might go too far in slowing economic growth, but that failing to bring inflation to heel represents a greater risk,” Fox News reported.
“We think that there are pathways for us to achieve that, to achieve the path back to 2% inflation while still retaining sustaining a strong labor market. We believe we can do that. That is our aim. There’s no guarantee we can do that.” Powell said.
Powell also added that the U.S. central bank’s response to the rising inflation could force policymakers to implement a surge in interest rates that would drag the U.S. economy into a recession.
“It’s certainly a possibility. We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else.” Powell claimed.
The Fed Chair also admitted that orchestrating a soft landing that the Central Bank hopes to achieve is becoming increasingly difficult.
“It is going to be very challenging,” he said. “It has been made significantly more challenging by the events of the last few months – thinking there of the war and of commodities prices and further problems with supply chains.” He explained.
