Perhaps the market is on a tear this year, but the economy is under the most stress it has been under since 2008, and a research company says it could still quickly go into recession.
Even though stocks have gone up this year because of predictions of a soft landing, the US is still on the edge of a recession. A note from Capital Economics on Thursday said that the economy has been under the most pressure since the Great Financial Crisis of 2008.
After the Federal Reserve rapidly raised interest rates over the past year, putting its target interest rate in the highest range since 2001, the research firm said that money was very tight; this has made finances tighter than they have been since 2008, the company said, pointing to financial condition indexes, or FCIs, which show that finances in the US, Europe, Australia, Canada, and Japan are getting close to where they were during the Great Recession.
The credit market has also begun to show signs of a coming downturn. The company said that the interest rates on consumer loans have risen above 8%, which is one of the main reasons why money is tight.
In the meantime, banks have cut back on lending a lot, and net loan to the private sector has almost stopped. The rise of the money supply has also slowed, which is another big sign that the economy is slowing down.
Simon MacAdam, a senior global economist at Capital Economics, said in a note on Wednesday, “Overall, whether it’s our FCIs, the money and credit data, or the bank lending surveys, the financial conditions data all point to economic activity in advanced economies struggling in the coming quarters.” “Recessions seem more likely than not in most cases when there aren’t any big things that make up for it.”
Some investors expect the opposite since markets have become more open to a soft landing in recent months. Even though the Fed has raised interest rates, the job market has stayed strong. However, experts warn that interest rate increases have a delayed effect on the economy, which means that jobs and other parts of the economy still face downside risk.
The New York Fed has said that the US economy has a 66% chance of going into recession by July 2024, even though there are no signs of a slowdown yet. GDP grew by 2% between the first and second quarters, and economists at the Atlanta Fed think the economy will grow by 3.9% between the third and fourth quarters. That’s the opposite of a recession, technically described as two straight quarters of negative GDP.