A Recession Fear Remains Close To Boiling Point

Concerns about a potential recession in the United States remained prominent this week, despite skepticism from some individuals about the prolonged duration of economists' worries regarding a severe downturn.

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Neil Dutta, head of economic research at Renaissance Macro, pointed out that a recession cannot always be just six months away, highlighting the tendency of economists to become overly attached to their forecasts and having difficulty letting go.

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Dutta acknowledged that real incomes are progressing and the negative impact on housing is diminishing, suggesting positive trends. However, those who remain worried about a recession believe that the current strength of the economy, despite the Federal Reserve's significant increase in its policy interest rate over the past year, is cause for concern.

These individuals anticipate that the Fed will need to continue tightening monetary policy until there is noticeable pain in financial markets and the real economy.

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Jim Baird, chief investment officer at Plante Moran Financial Advisors, expressed his belief that while the recession may be delayed, it will be challenging to avoid. He added that the Fed has a tendency to disrupt the economy by raising interest rates until they ultimately cause harm.

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Sal Guatieri, senior economist at BMO Capital Markets, observed that almost every economic indicator in the United States surpassed expectations, which likely bolstered Fed Chairman Jerome Powell's confidence during his European tour, leading him to suggest two more rate hikes. Guatieri acknowledged the possibility of a more severe economic downturn if the full impact of higher rates is yet to be felt, but maintained a mild slump as the baseline expectation, with the timing still uncertain due to ongoing supportive factors.

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In summary, concerns about a potential recession persist despite positive economic indicators, and economists and analysts continue to assess the impact of the Federal Reserve's actions on the future trajectory of the economy.

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