The News Caravan

Tag: recession

  • Recession risks rise for Biden and Democrats

    Recession risks rise for Biden and Democrats

    [ad_1]

    Other midsize banks including PacWest, Western Alliance and Zions came under heavy investor pressure late last week as Wall street probed for possible next victims in the rolling crisis, created in part by the Fed jacking up interest rates ten consecutive times to the highest level since 2007. The Fed bumped up rates another quarter point last week but suggested it could possibly pause the hikes at its next meeting in June.

    The rate increases helped tamp down a historic rise in consumer inflation in the wake of the Covid pandemic. But prices are still rising significantly faster than the Fed’s target of around 2 percent per year.

    The April employment report released on Friday, showing a still remarkably healthy 253,000 new jobs created, also showed wage increases bumping up to a 4.4 percent annual pace from 4.3 percent. The Fed is eager to see wage increases cool because they can feed into overall inflation as companies pass higher employment costs on to consumers in the form of higher prices.

    Shares in regional banks that got slammed late last week recovered somewhat over the last two trading sessions. And each bank has depositor profiles very different from the three failed lenders, which had much higher levels of accounts with above the FDIC insured threshold of $250,000.

    Still, there remains heavy concern across Wall Street and among many economists that the Fed’s rapid and intense campaign of rate hikes meant to battle inflation will smash the brakes on the economy hard enough to create a recession.

    Such a recession would come as Biden, who continues to suffer from very low approval ratings especially on the economy, is just launching his reelection effort. Republicans are poised to rip the incumbent and Congressional Democrats, arguing their heavy spending policies in the wake of Covid helped drive up inflation. The White House is also facing a possibly market-shaking showdown with Hill Republicans on the nation’s borrowing limit.

    All the rate hikes are only just now beginning to ripple across the economy, driving down the homebuilding and other sectors as borrowing costs make it much more difficult for consumers to make big purchases and businesses to make major investments. That impact showed up in the survey released on Monday, officially known as the Federal Reserve Senior Loan Officer Survey or “SLOOS.” The report, while not as dire as some feared, showed that the banking sector meltdown is causing lenders to tighten up even further.

    “Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023,” the report said.

    The Fed in a separate report Monday cited a potential contraction in lending triggered by bank stress as one of the financial system’s top near-term risks. Businesses would feel the brunt of the impact.

    “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity,” Fed officials said in the report. “With a decline in profits of nonfinancial businesses, financial stress and defaults at some firms could increase, especially in light of the generally high level of leverage in that sector.”

    Many economists — including Democrats like former Treasury Secretary Larry Summers — argue that all the hikes will eventually cause at least a brief recession that drives the jobless rate higher, knocking out a key pillar of Biden’s pitch for a second term. The economy expanded at just a 1.1 percent pace in the first quarter of the year, according to an initial government estimate. And many economists now see significant odds of a recession starting later this year and possibly dragging into the 2024 campaign year.

    “The Federal Reserve Senior Loan Officer Survey provides the first real insight into how much lending has tightened on the back of turmoil among local and regional banks,” said Joseph Brusuelas, chief economist at consulting firm RSM US. “While banks have been tightening lending standards for the past year, the jump in the percentage of those reporting further tightening does denote an increase in the risk of a hard economic landing.”

    [ad_2]
    #Recession #risks #rise #Biden #Democrats
    ( With inputs from : www.politico.com )

  • Eurozone economy avoids recession ‘by a whisker’

    Eurozone economy avoids recession ‘by a whisker’

    [ad_1]

    The eurozone has defied predictions that the Ukraine war would plunge it into recession after a warm winter blunted the impact of higher energy prices.

    Data from Eurostat – the EU’s statistical agency – showed that growth in the 20 countries using the single currency stood at 0.1% in the first three months of 2023.

    The small overall increase disguised a wide variation across member states. The eurozone’s biggest economy, Germany, stagnated in the first quarter of 2023 after contracting by 0.5% in the final three months of 2022.

    Italy and Spain, the third and fourth-biggest eurozone economies, performed better than the markets had been expecting, each posting quarterly growth of 0.5%. France grew by 0.2%.

    However, analysts said growth prospects were likely to remain weak because of the determination of the European Central Bank (ECB) to combat strong underlying inflationary pressures with higher interest rates.

    Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said: “The very small increase in GDP in the first quarter means a technical recession has been avoided by a whisker.

    “However, the economy has essentially stalled as domestic demand has been hit hard by the energy shock followed by monetary tightening. We think activity will remain weak in the coming quarters.”

    The small increase in growth in early 2023 followed a flat picture in the final three months of 2022 and reduced the year-on-year increase in output from 1.8% to 1.3%.

    Even though the eurozone economy has been flatlining for the past six months, its success in staving off a severe downturn has surprised economists, who this time last year were predicting a severe recession.

    Carsten Brzeski, the global head of macro at ING bank, said: “More resilient than expected is clearly one label to put on the eurozone’s economic performance. In fact, the eurozone economy has now been able to avoid what a few months ago was probably the best predicted recession ever.

    “The warmer winter weather, lower wholesale energy prices, the reopening of China and fiscal stimulus are the key drivers behind this better-than-expected performance.”

    skip past newsletter promotion

    Neil Birrell, the chief investment officer at Premier Miton Investors, said: “The eurozone economy has been resilient in the face of energy price increases and rate hikes over the past few months, and while growth is slowing, this remained the case in the first quarter.

    “However, we are still likely to see the ECB press ahead with tighter policy measures when they meet on 4 May. There is nothing in this dataset to suggest that the economy is stalling or that inflation is beaten. In fact, the inflation data at country level suggests the opposite.”

    The annual inflation rate in the eurozone came down sharply in March from 8.5% to 6.9% but the ECB is concerned about core inflation, which excludes food and energy. This rose from 5.6% to a new record high of 5.7% last month, prompting forecasts that the ECB will raise rates by 0.25 percentage points when it meets next week.

    [ad_2]
    #Eurozone #economy #avoids #recession #whisker
    ( With inputs from : www.theguardian.com )

  • Fed economists project recession this year, in potential blow to Biden

    Fed economists project recession this year, in potential blow to Biden

    [ad_1]

    aptopix federal reserve 68406

    Their projection was for “a mild recession starting later this year, with a recovery over the subsequent two years,” according to the minutes, released Wednesday. That would spark a jump in unemployment. They estimated the economy would fully recover by 2025.

    The economic outlook is always difficult to foretell with any confidence, and staff members underscored their uncertainty at the meeting. If banks don’t pull back on lending as much as they expect, then the economy might not suffer as much. But if the financial system were to face even more stress, then the prognosis could be much worse.

    “Historical recessions related to financial market problems tend to be more severe and persistent than average recessions,” staff noted, according to the minutes.

    For their part, officials with an actual say in rate policy aren’t quite forecasting a recession. At the March meeting, their median projection was for the U.S. economy to grow 0.4 percent — a rate so slow that it could easily dip negative. Meanwhile, they expect unemployment to rise roughly a percentage point, conditions that would be consistent with an economic contraction.

    Fed officials expect the recent string of bank failures to lead cash to flow less freely through the economy as lenders are less willing to part with it, something Chair Jerome Powell has noted could act as essentially another rate hike.

    Central bank policymakers are considering whether another rate hike will be needed when they meet next in May, or if borrowing costs are high enough for now to bring inflation down over time.

    Members of the Fed’s rate-setting committee said in March “that it was too early to assess with confidence the magnitude of the effect of a credit tightening on economic activity and inflation, and that it was important to continue to closely monitor developments,” according to the minutes.

    [ad_2]
    #Fed #economists #project #recession #year #potential #blow #Biden
    ( With inputs from : www.politico.com )