An often-overlooked economic gauge indicated on Friday that the US economy is headed for recession – or already in one – as the Federal Reserve tries to curb inflation with a series of rapid hikes in interest rates.
The Conference Board’s Leading Economic Indicators index showed that conditions continued to worsen in October, with the measure falling 0.8% from the previous month. This follows a decrease of 0.5% in September.
“The US LEI declined for the eighth consecutive month, suggesting that the economy is possibly in recession,” said Ataman Ozyildirim, senior director of economic research at the Conference Board.
The drop reflects a worsening outlook among consumers, who are increasingly concerned about steeper interest rates and stubbornly high inflation, as well as a prolonged slump in the housing market.
DEMOCRATS SAY ‘DANGEROUS’ FED RATE INCREASE, WARN OF WANTED JOB LOSSES
There is a growing expectation on Wall Street that the The Fed will lead to a slowdown in the economy as it raises interest rates at the fastest pace in three decades to keep up with flat inflation.
Officials this month approved a fourth consecutive rate hike of 75 basis points, lifting the federal funds rate to a range of 3.75% to 4% – close to restrictive levels – and did not show the -no signs of rate hikes stopping.
In a worrying development, the Fed’s rate hikes have so far failed to dampen inflation: The government reported this month that the consumer price index rose 7.7% in October from -the previous year, and hovers near the highest level in 40 years.
FED RAISES INTEREST RATES BY 75 BASIS POINTS FOR FOURTH MONTH WIFI
This indicates that the Fed will have to continue charting its aggressive course, raising the odds that it will crush consumer demand and cause unemployment to rise.
“Let me say this,” Fed Chairman Jerome Powell told reporters earlier this month. “It’s very premature to be thinking about a pause. When people hear delays, they think about pauses. It’s very premature, in my view, to talk about stopping our rate increases. We have a way to go. “
Rising interest rates tend to create higher rates on consumer and business loans, which slow down the economy by forcing employers to reduce spending.
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Economic growth has already slowed in the first two quarters of the year, with gross domestic product — the broadest measure of goods and services produced in a nation — down 1.6% in the winter and 0.6% in the spring.
However, it recovered during the summer, with GDP growing by 2.6% on an annual basis in the three-month period from July to September.