Many employers are still hiring to address the shortage of workers, but Federal Reserve (Fed) officials predict that the U.S. unemployment rate may jump to 4.6% from the current 3.7% by the end of next year.
Is the U.S. economy headed for recession? If the Federal Reserve's 2023 unemployment forecast comes true, the answer may be yes.
Looking back at U.S. history, whenever the unemployment rate rises, even if the increase is small, it almost always predicts that the economy is in recession—a pattern originally proposed by former Fed economist Sam in a paper published in 2019. Her analysis became known as Sam's Rule and was considered an indicator of decline.
The U.S. unemployment rate has climbed slightly in recent months, from 3.5% in September to 3.7% in November. According to the "Sam Rule", if the unemployment rate rises above 4% in the next year, it may indicate that an economic recession is likely to have begun.
Fed's economic forecast released on the 14th showed that most policymakers predict that the U.S. unemployment rate will rise to 4.6% by the end of next year, an increase from the 4.4% forecast three months ago, and much higher than the level that may trigger a recession warning light. According to Sam's rule, if the unemployment rate rises that much, it may be a sign of economic recession.
Reuters reported that assuming the labor force remains relatively stable and the unemployment rate jumps from 3.7% to 4.6%, the number of unemployed people may surge by more than 1 million.
Sam herself said with reservations that the rule she pioneered is based on historical conditions, but the current economy is disrupted by the new coronavirus epidemic, and Sam's rule may not be applicable in this abnormal situation.
In addition, judging from the forecasts of Fed policymakers themselves, their outlook for U.S. economic growth is also more pessimistic. Based on the forecasted median , they estimate that the U.S. gross domestic product (GDP) growth rate next year will be only 0.5%, which is significantly lower than the 1.2% forecast in September. Two Fed policymakers even believe that the U.S. economy will shrink next year.
The U.S. Federal Reserve (Fed) announced on the 14th that it will further increase the federal funds interest rate 2 code (0.5 percentage points), and expects that interest rates will rise to more than 5% next year. Affected by this, the dollar's depreciation trend paused, but there was no strong rebound. How to view the market outlook?
The dot chart shows that Fed officials estimate that the terminal interest rate of this wave of interest rate hikes will exceed 5%, which is higher than originally expected. ING Foreign exchange analyst Francesco Pesole believes that this is the main reason that caused the dollar's depreciation to come to an abrupt end; as for the dollar's failure to rise sharply in response to the Fed's hawkish tone, it may be because Fed Chairman Powell is unwilling to express his protest clearly against the loosening of financial conditions.
Pesole said: After the monetary decision was announced, the U.S. government bond yield curve showed a bearish flatness, which means that short-term interest rates rose sharply and long-term interest rates rose slightly. It stands to reason that an environment that is not so unfavorable to the US dollar will now be formed.
Before the European Central Bank (ECB) announces its interest rate decision on the 15th, the foreign exchange market will still maintain a cautious wait-and-see attitude for the time being.
The U.S. dollar index (DXY) climbed 0.6% to 104.372 on the 15th. euro depreciated 0.6% against the US dollar to $1.0612.
Investors digested the Fed's latest interest rate hike decision to curb inflation , US stocks fell.
The Dow Jones Industrial Average fell 142.29 points, or 0.42%, to 33966.35 points. The S&P 500 index fell 24.33 points, or 0.61%, to 3995.32 points. The Nasdaq Composite Index fell 85.93 points, or 0.76%, to 11,170.89 points.
The major averages hit session lows after Fed Chairman Paul said more data would be needed to materially change his view on inflation. The Dow Jones Industrial Average fell 404.47 points after rising 287.01 points during the session.
Ball said the inflation data received so far for October and November showed a slowdown in monthly price increases. But more evidence is needed to convince people that inflation is on a sustained downward trajectory.
The Fed announced a widely expected rate hike of 2 yards (50 basis points) at the end of its December policy meeting. Compared with the previous four consecutive interest rate hikes of 3 yards (75 basis points), the increase in is smaller.
Fed officials also predict that interest rates will continue to rise next year, with no interest rate cuts until 2024.The Fed will eventually raise interest rates to 5.1%, the so-called terminal rate, above the 4.6% level it forecast in September, before stopping raising rates.
It is worth noting that the FOMC left in a key part of the policy statement the statement that a continued rise in the target range is expected to be appropriate.
The dollar initially rose after the Fed announced a rate hike. But those gains were given back at the end of Ball's news conference. The U.S. dollar index closed at 103.55, down about 0.4%. It had previously risen to 104.16.
The Federal Reserve (Fed) is scheduled to announce its latest decision at 2 p.m. Eastern Time on the 14th. What the Federal Open Market Operations Committee (FOMC) will do this time will be announced soon. Here are five predictions from the Financial Times.
1.FOMC is expected to raise the federal funds target interest rate range by 2 percentage points (0.5 percentage points) to 4.25%-4.5%. This is the first reduction in the pace of interest rate hikes since May. It has slowed down from the previous four consecutive 3-point interest rate hikes, reflecting that the fight against inflation has entered a new stage.
2. The "dot plot" is expected to show that Fed officials have revised their interest rate forecasts for next year upward. The peak interest rate in this interest rate hike cycle may increase from the 4.6% estimated in September to 4.75%-5.25%. Most officials are likely to favor 5.25%.
3. Most officials will say that interest rate cuts will not be possible until at least 2024, highlighting the need to keep interest rates at a high level for some time to reduce inflationary pressures.
4. Fed officials may revise their inflation forecasts for next year and next year. Looking at the core personal consumption expenditures price index, core inflation rates in 2023 and 2024 are likely to be revised down from the average estimate of 3.1% and 2.3% in September, respectively. Inflation has continued to show signs of cooling recently, with the annual PCE core price index increasing at an annual rate of 5% in October, easing from 5.2% in September.
5.Fed officials are expected to revise down their economic growth forecasts and raise their unemployment forecasts to consider the impact of the need to continue raising interest rates. In September, most officials estimated that the economy would grow by 0.2% in 2022 and 1.2% in 2023, with the unemployment rate rising to as high as 4.4%. The current unemployment rate in the United States is 3.7%, still a historical low, and wages are rising rapidly due to the unresolved job shortage; however, the housing market boom has declined as mortgage interest rates have risen, and consumer confidence is still low.
Fed Chairman Jerome Powell recently said that it is a very credible prospect that the Fed will successfully suppress inflation without triggering a recession. However, the latest survey by the Financial Times shows that 85% of economists surveyed believe that a recession is coming next year. In November, the consumer price index increased by 7.1% year-on-year and 0.1% monthly, respectively lower than the 7.3% and 0.3% expected by economists. It also gave the Fed more reason to slow down the pace of interest rate hikes.
