Bloomberg Economics sees near certainty downturn will start
Tightening conditions, inflation, hawkish Fed weigh on outlook
A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms.
The latest recession probability models by Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all time frames, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update.
The forecast will be unwelcome news for Biden, who has repeatedly said the US will avoid a recession and that any downturn would be “very slight,” as he seeks to reassure Americans the economy is on solid footing under his administration.
And with that terrible news for the economy, the Fed Funds Futures market is hinting at a March 2023 pivot from The Fed.
The good news? The stock market is up BIG today. Likely because investors feel that the stock market has been oversold. The NASDAQ Composite Index lies beneath the Ichimoku Cloud.
And the NASDAQ is close to the bottom Bollinger Band.
When we look at tomorrow’s US jobs report, it is important to acknowledge that 1) The Federal Reserve has not yet removed the Covid stimulus (green line) and 2) the ADP payroll jobs added was only 132k in August while non-farm payrolls jobs added in July was 528k. That is quite a spread!
(Bloomberg)The hotly anticipated US jobs report has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand.
Friday’s report is one of the last marquee releases Fed officials will have in hand before the mid-September policy meeting to help them decipher a complex economic and inflationary puzzle.
Forecasts call for a healthy, yet more moderate 298,000 gain in August payrolls and for the unemployment rate to hold steady at 3.5%, matching the lowest in five decades. Solid wage growth is also expected amid a persistent mismatch between labor demand and supply.
Such figures, in conjunction with a blowout July employment print, improving consumer sentiment figures and a surprise pickup in job openings, could be enough to push the Fed to raise borrowing costs by 75 basis points, extending the steepest interest-rate hikes in a generation to curb an inflation surge.
As of this morning, Fed Funds futures data is still pointing to The Fed Funds Target rate rising from 2.50% to around 4% by the March FOMC meeting. That is still a large jump of another 150 basis points anticipated.
Well, the US have gone from “fastest economic recovery in history” to real GDP growth of less than 1% (Atlanta Fed GDPNow for Q1). In addition, the flexible price CPI less food and energy is a whopping 20%.
You can see “The Biden Miracle!” in the following chart. Hires (red line) dropped with Covid shutdowns, then spiked when governments opened economies again. Throw in the trillions of Federal government Covid stimulus and trillions in Fed monetary support, the Biden Miracle sees less like a miracle and more like an extremely expensive way to add jobs. But the interesting problem facing the Administration is the massive spike in job openings relative to hires (again, governments opening-up plus Federal Stimulypto).
Now for a real downer of a chart. Inflation is so toxic that REAL average hourly earnings YoY is down -2.72%. Hardly the best economic growth in history.
Now we have Jerome Powell and The Blackhearts threatening quantitative tightening starting in May. Here is The Fed’s theme song “We love printing money.”
But The Fed is already slowing the growth of monetary base, although this Fed Stimulypto is still growing much faster than pre-Covid.
At least the 10Y-2Y Treasury curve is back above 0 bps as the Atlanta Fed’s GDPNow Q1 forecast falls to under 1%.
Remember, The Fed is planning on shrinking the balance sheet by $95 billion. The Fed’s balance sheet is just shy of $9 trillion. Which is around 1% per month.
With rising expectations of Fed quantitative tightening (QT), residential mortgage rates keep climbing.
Despite a slowing economy teetering on recession and a war raging in Europe, The Fed is tightening monetary policy. Allegedly to fight red-hot inflation.