First on CNN: Next spring, the economy will plunge into a mild 1990-style recession, says Fitch

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stubborn hypertrophy And the Federal Reserve Board Big hikes in interest rates It will lead the US economy into a mild 1990-style recession beginning in the spring, credit rating agency Fitch warned on Tuesday.

In a report obtained first by CNN, Fitch has lowered its forecast for US growth for this year and next due to One of the most ferocious anti-inflation campaigns By the Federal Reserve in history. US GDP is now expected to grow by just 0.5% next year, down from 1.5% in the company’s forecast for June.

Fitch said high inflation will “provide a lot of drain” on household income next year, shrinking consumer spending to the point that it causes a contraction during the second quarter of 2023.

Fitch, one of the world’s three largest credit rating agencies, assesses the ability of companies and countries around the world to repay their debts, providing key guidance for investors.

The bleak outlook adds to The growing fear of markets, economists and business leaders That the largest economy in the world about to stagnate – Only 2.5 years after the last time.

However, the bright side is that the next recession may not be as devastating as the last two major recessions.

“The US recession we expect is very mild,” said economists at Fitch Ratings.

The credit rating company argued that the US is entering this difficult period from a position of strength – especially since consumers are not burdened with as much debt as in the past.

“Finances for US households are much stronger now than they were in 2008, the banking system is healthier, and there is little evidence of overbuilding in the housing market,” the economists at Fitch wrote.

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The Great Recession, which began in late 2007, was the worst downturn since the Great Depression and nearly brought the financial system apart. The Covid recession, which began in early 2020, has caused the unemployment rate to rise to nearly 15%.

In contrast, Fitch Ratings sees the unemployment rate rising From only 3.5% today to a peak of 5.4% in 2024. This is a 1.9 percentage point increase from current levels and translates into millions of job losses, but not nearly as much as those lost during the previous two recessions: the unemployment rate rose by 11.2% points during the Covid recession and by 5.6 percentage points during The Great Recession. In the aftermath of the 1990-91 recession, the rate rose by 2.8 percentage points.

“Credit ratings agency Fitch expects a very strong consumer balance sheet and the strongest job market in decades to mitigate the impact of a potential recession,” the report said.

Despite mounting recession fears, the labor market remains very tight, with the supply of workers out of balance with the demand for labour. Layoffs are low, layoffs, and job vacancies are high.

Fitch says the next recession is likely to be “significantly similar” to the one that began in July 1990 and ended in March 1991.

There are interesting parallels between today and the early 1990s.

Like today, the recession occurred in 1990 after the Federal Reserve rushed to fight inflation by quickly raising interest rates.

Likewise, this downturn was preceded by an oil shock fueled by the war. At the time, it was Iraq’s invasion of Kuwait that drove the prices of gasoline and energy to Americans.

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Today’s period of high energy prices is related in large part to the Russian invasion of Ukraine, a conflict that also drove up food prices.

The recession of 1990-1991 helped wipe out the political fortunes of then-President George HW Bush.

In the 1992 race for the White House, Arkansas Governor Bill Clinton blamed Bush policies for the recession and one Clinton strategist coined the phrase “It’s the economy, stupid,” highlighting the The importance of this issue for voters.

Recent opinion polls indicate that voters today are focused intensely on the state of the economy. in The New York Times poll published on Monday44% of potential voters said economic concerns are the most important issue facing America – far higher than any other issue.

Inflation remains the biggest cloud hanging over the US economy. The rising cost of living erodes the value of workers’ salaries and erodes consumer confidence. Persistent inflation has also caused the Federal Reserve to clamp down on the economy by raising interest rates dramatically.

That’s why economists in a separate poll, from the Wall Street Journal, associate the chance of a recession in the next 12 months at 63%, The highest level in more than two years.

Jamie Dimon, CEO of JPMorgan Chase For CNBC last week A “very dangerous” mix of challenges is likely to cause a recession by the middle of next year.

Credit rating agency Fitch said there is still a risk of a deeper recession than the one that began in 1990, in part because US companies carry more debt relative to the size of the economy than they did 30 years ago. The report also noted the “highly uncertain” impact of the Fed’s efforts to reduce it The balance sheet is $9 trillion.

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The biggest bright spot in the economy is the job market, where the unemployment rate is tied to the lowest level since 1969. However, Federal Reserve officials expect the unemployment rate to rise in the coming quarters and Bank of America warns The US economy will lose 175,000 jobs a month during the first quarter of next year.

Even White House officials acknowledge an economic slowdown may be on the way.

President Joe Biden CNN’s Jake Tapper told last week A “slight recession” is possible, although this is not expected.

Transportation Minister Pete Buttigieg Tell ABC News over the weekend Recession is “possible but not inevitable”.

Although the risks are clearly increased, stagnation is not a foregone conclusion.

Nobody, not even the Federal Reserve, knows exactly how this will all turn out. It is impossible to say what happens to a $23 trillion economy two years after a once-in-a-century pandemic and in the midst of war in Europe. There is no evidence for this.

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