BNEWS Contrary to many people’s opinions, investment research firm BCA Research believes that the US economy is at risk of falling into recession.
In particular, the upcoming interest rate cuts by the US Federal Reserve (Fed) are not expected to be enough to get the US out of this scenario.
Garry Evans, global asset allocation strategist at BCA Research, points to signs of a slowing economy, with the US labor market deteriorating. The US Labor Department reported that the unemployment rate rose to 4.3% in July, the highest since October 2021. In the same month, an index of US manufacturing activity fell to an eight-month low.
Investors are expecting at least three rate cuts by the end of the year, according to the CME FedWatch Tool. But Evans said a few rate cuts won’t prevent a recession, and it will take about a year before the Fed’s cuts really start to boost the economy.
Mr. Evans said the market believes the Fed’s interest rate will be 3% by the end of next year, compared with the current level of 5.3%. This will not happen unless the economy falls into recession.
Traders are also looking ahead to the annual economic policy conference in Jackson Hole this week, which could provide more clarity on the outlook for interest rates. Fed Chairman Jerome Powell will speak on Aug. 23.
The US economy has remained strong even amid rising inflation and interest rates. However, over the past century, the US has had more than a dozen recessions, some lasting as long as a year and a half.
As speculation grows about a potential interest rate cut by the US Federal Reserve, concerns are mounting over the possibility of an economic recession. The anticipation of a rate cut has sparked debate among economists and market analysts, with some arguing that it could be a necessary move to stimulate growth, while others fear it may signal underlying economic weaknesses that could tip the economy into recession.
Proponents of the rate cut argue that lowering interest rates could encourage borrowing and investment, providing a much-needed boost to the economy amid global uncertainties and slowing growth. They believe that proactive measures could prevent a downturn and keep the economy on a steady path.
However, critics warn that a rate cut could be a double-edged sword. Lowering rates might lead to reduced confidence in the economy’s stability, causing consumers and businesses to hold back on spending and investment. Additionally, if the rate cut is perceived as a response to deeper economic troubles, it could trigger a negative feedback loop, exacerbating fears of a recession.
As the Fed faces mounting pressure, the decision on whether to cut rates could have significant implications for the US economy’s future trajectory. Will a rate cut stabilize the economy, or could it inadvertently spark the very recession it aims to prevent?
4o
