Beautiful Virgin Islands

Wednesday, Feb 05, 2025

New Fed research flags rising risk of U.S. recession

New Fed research flags rising risk of U.S. recession

Just over half of the 50 U.S. states are exhibiting signs of slowing economic activity, breaching a key threshold that often signals a recession is in the offing, new research from the St. Louis Federal Reserve Bank report said.
That report, released Wednesday, followed another report from the San Francisco Fed from earlier in the week that also delved into the rising prospect that the U.S. economy may fall into recession at some point in coming months.

The St. Louis Fed said in its report that if 26 states have falling activity within their borders, that offers “reasonable confidence” that the nation as a whole will fall into a recession.

Right now, the bank said that as measured by Philadelphia Fed data tracking the performance of individual states, 27 had declining activity in October. That’s enough to point to a looming downturn while standing short of the numbers that have been seen ahead of some other recessions. The authors noted that 35 states suffered declines ahead of the short and sharp recession seen in the spring of 2020, for example.

Meanwhile, a San Francisco Fed report, released Tuesday, observed that changes in the unemployment rate can also signal a downturn is on the way, in a signal that offers more near-term predictive value than the closely-watched bond market yield curve.

The paper’s authors said that the unemployment rate bottoms out and begins to move higher ahead of recession in a highly reliable pattern. When this shift occurs the unemployment rate is signaling the onset of recession in about eight months, the paper said.

The paper acknowledged its findings are akin to those of the Sahm Rule, named for former Fed economist Claudia Sahm, who pioneered work linking a rise in the jobless rate to economic downturns. The San Francisco Fed research, written by bank economist Thomas Mertens, said its innovation is to make the jobless rate change a forward-looking indicator.

Unlike the St. Louis Fed state data that is tipping toward a recession projection, the U.S. jobless rate has thus far remained fairly stable, and after bottoming at 3.5% in September, it held at 3.7% in both October and November.

The San Francisco Fed paper noted that the Fed, as of its December forecasts, sees the unemployment rate rising next year amid its campaign of aggressive rate hikes aimed at cooling high levels of inflation. In 2023, the Fed sees the jobless rate jumping up to 4.6% in a year where it sees only modest levels of overall growth.

If the Fed’s forecast comes to pass, “such an increase would trigger a recession prediction based on the unemployment rate,” the paper said. “Under this view, low unemployment can lead to a heightened probability of recession when the unemployment rate is expected to rise.”

Tim Duy, chief economist with SGH Macro Advisors, said he believes that to achieve what the Fed wants on the inflation front, the economy would likely “lose roughly two million jobs, which would be a recession like 1991 or 2001.”

Anxiety over the prospect of the economy falling into recession has been driven by the Fed's forceful actions on inflation. Many critics contend that the central bank is focusing too much on inflation and not enough on keeping Americans employed. Central bank officials have countered that without a return to price stability, the economy will struggle to meet its full potential.

What's more, in the press conference following the most recent Federal Open Market Committee meeting earlier this month, central bank leader Jerome Powell said that he didn’t view the current Fed outlook as a recession prediction given the expectation growth will remain positive. But he added much remains uncertain.

“I don’t think anyone knows whether we’re going to have a recession or not and, if we do, whether it’s going to be a deep one or not. It’s just, it’s not knowable,” Powell said.
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
European Union Proposes Reforms to 1951 Refugee Convention
China's humanoid robots poised to transform everyday living and spiritual functions.
Changes in US tariffs on Chinese products could affect consumers more significantly than they do China.
How Innovations in China's Humanoid Robots Ignite Fierce Competition with the US
Germany Experiences 34% Decrease in Asylum Applications During Migration Discussion
Experts Challenge Conviction of UK Nurse Lucy Letby for Baby Killings
AfD Chief Alice Weidel Enhances Global Standing Through Meeting with Viktor Orban
Nigel Farage's Reform UK Party Leads Poll Amid Growing Public Demand for Change
Conor Murphy Steps Down as Northern Ireland Economy Minister to Join Irish Parliament
Over 1 Million Face Penalties After Missing HMRC Self-Assessment Tax Deadline
Scottish Government Denies Plans to Ban Cat Ownership Amid Controversy
Bridget Phillipson Urges Parents to Prioritize School Attendance Amid Rising Absence Rates
Keir Starmer Advocates for Stronger UK-EU Security Partnership in Brussels
Six English Councils Granted Permission to Raise Council Tax Bills Above Cap Amid Financial Struggles
Keir Starmer Faces Growing Backlash Over Potential Approval of Rosebank Oilfield
AI Consciousness Raises Ethical Concerns, Say Experts
Families Urge NHS England to Release Full Report on Nottingham Triple Homicide
NHS Initiates Largest AI Trial for Breast Cancer Detection
UK Tightens Regulations on Online Sales of Weight-Loss Injections
Gambling Ads Shown to Parents on Baby Monitor App, Raising Concerns
Ancient Irish Rainforests at Risk Due to the Growth of Monoculture Plantations
EU Leaders Deliberate on Defense Strategy Amid Rising U.S. Tensions
EU Leaders Convene Important Summit on Defense in Response to Rising Tensions
Trump Directs Establishment of U.S. Sovereign Wealth Fund, Considers TikTok Purchase
Britain Considers U.S. Gas Imports in Response to Possible Trump Tariffs
French Prime Minister Bayrou Confronts Several No-Confidence Votes Regarding the 2025 Budget
Shutdown of USAID Headquarters in Light of U.S. Government Reduction Initiatives
President Trump Launches Establishment of U.S. Sovereign Wealth Fund with Possible TikTok Purchase
Investigation Launched Following Viral Video of Bodybuilder's Airport Prank
Cooling Blankets: A Remedy for Those Who Sleep Hot or Just a Marketing Ploy?
Trump Wins Again as Canada Agrees to Strengthen Border Security
Trump Seeks Rare Minerals from Ukraine in Exchange for U.S. Support
EU Leaders Reach Consensus to Increase Defence Expenditure in Response to Growing Security Threats
UK Business Confidence Declines Amid Economic Uncertainty, Lloyds Survey Shows
Abhishek Sharma's Century Secures India a 4-1 T20 Series Win Over England
UK Prime Minister Keir Starmer will welcome German Chancellor Olaf Scholz for talks at Chequers.
Australian soccer sensation Sam Kerr confronts a racial abuse trial in London.
Lloyds and Barclays Bank Customers Experience Service Outages
Thames Water Seeks Court Approval for £3 Billion Rescue Plan Amid Crisis
UK Manufacturing Activity Contracts for Fourth Consecutive Month in January, PMI Shows
Ex-British Soldier Receives Sentence for Espionage on Behalf of Iran and Fleeing Custody
Emergency Crews Deployed on Santorini as Earthquake Swarm Raises Concerns
Wall Street Journal Criticizes Trump's Trade War with Canada and Mexico
Trump Freezes Tariffs on Mexico After Agreement on Border Security
Nearly 96% of New Cars Registered in Norway in January Were Electric
One Dead, Thousands Evacuated as Floods Hit North Queensland
Bart De Wever Appointed Belgium's New Prime Minister
Apple Abandons AR Glasses Project Amid Struggles with Technology and Market Demand
US Man Receives Photo Instead of Drill After Placing Order on Chinese Website
U.S. Clinical Trial Investigates Medication to Prolong Dogs' Lifespan
×