Aurelia Butler

(Reuters) – The U.S. Treasury Department is likely to announce that it will continue to cut some of its issuance of coupon-bearing Treasury debt when it announces its funding plans for the coming quarter on Wednesday, on expectations of a shrinking deficit.It may also offer hope that Treasury bill issuance will increase as the Federal Reserve pares back its balance sheet, as short-term investors struggle with a dearth of short-term debt supply.The Treasury has been cutting the size of its Treasury debt auctions since late last year, after ramping them up to unprecedented sizes in 2020 to pay for COVID-19 related spending.“Expected deficits have come down, Treasury needs to reduce the pace of issuance accordingly,” said Jonathan Cohn, head of rates trading strategy at Credit Suisse in New York.Analysts are divided on how many maturities are likely to be cut for the third quarter, with some seeing cuts across the Treasury curve, while others expect reductions only in longer-dated and/or the seven-year and 20-year maturities.The seven-year and 20-year Treasuries trade with relatively higher yields, which has caused some dislocations in the Treasury yield curve. Twenty-year bond yields, for example, are higher than those on 30-year bonds, while seven-year yields trade above those on 10-year debt. Graphic: Yield Curve, https://fingfx.thomsonreuters.com/gfx/mkt/zgvomxodevd/Yield%20Curve.JPG Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York, said that the Treasury Borrowing Advisory Committee (TBAC), which releases a presentation along with the refunding announcement on Wednesday, is likely to focus on demand for the 20-year bonds.He noted, however, that issues around the maturity relate to trading in the secondary market, with demand for the bonds solid at auctions. Lyngen expects 20-year yields to remain higher than 30-year bonds until the Fed begins cutting rates, which would resteepen the yield curve, but he added that this is unlikely in the near-term.Meanwhile, the Treasury is likely to indicate that it will ramp up Treasury bill issuance in the coming months as it makes up for declining purchases by the Fed, which is letting more bonds roll off its balance sheet as part of its efforts to normalize monetary policy.After beginning quantitative tightening in June and slowly ramping up in size, the Fed will let $95 billion in bonds mature in September, which will include $60 billion in Treasuries and $35 billion in mortgage-backed debt.More Treasury bill supply should help ease an imbalance that has left money markets investors struggling with a lack of safe, short-term assets to buy.“Bill supply should start to pick up in the next few months,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York, noting that this should also reduce demand for the Fed’s reverse repurchase agreement facility, which is seeing daily demand of more than $2 trillion.TD expects net Treasury bill issuance to increase by $525 billion in fiscal year 2023, which begins in October, following a $173 billion decline in 2022 and a $1.32 trillion drop in 2021.That compares to expectations that net coupon issuance will grow by $1.08 trillion in fiscal year 2023, after increasing by $1.87 trillion in 2022, and by $2.73 trillion in 2021. Graphic: Auction Sizes, https://fingfx.thomsonreuters.com/gfx/mkt/xmpjodawlvr/Auction%20Sizes.JPG Credit Suisse’s Cohn noted that an increase in bill issuance, and cuts to coupon-bearing debt, should also help to rebalance the Treasury’s debt mix to be more in line with recommendations by the TBAC, which advises the government on its borrowing strategy.Treasury bills outstanding have fallen to the low end of the TBAC’s recommended 15-20% of total debt, he said. “In increasing bill supply Treasury would be more thoughtfully distributing the supply burden as QT unfolds across investor bases with appropriate liquidity,” Cohn said. More

In a sign of a tough second half of the year, growth in the world’s largest economy, the United States, shrank for the second straight quarter, while in the euro zone business growth slowed sharply in June due to rising cost of living. LAYOFFS: Company name Date Layoffs impact Commentary Alibaba (NYSE:BABA) Group March 16 About 39,000 staff Started firing employees in February. It discussed job cuts with several business units that month and left it to them to make specific plans, a source told Reuters. Tencent Holdings (OTC:TCEHY) March 16 10%-15% headcount In an internal meeting at Tencent at the end of 2021, CEO Pony Ma told staff the company should prepare for a “winter”, two sources told Reuters. Tesla (NASDAQ:TSLA) Inc June 3 Roughly 10% in “I have a super bad feeling about the economy,” CEO Elon salaried staff Musk said in emails seen by Reuters. JPMorgan Chase (NYSE:JPM) & June 22 Over 1,000 “Our staffing decision this week was a result of cyclical Co employees changes in the mortgage market,” a spokesperson said. Shopify (NYSE:SHOP) Inc July 26 10% of its “Ultimately, placing this bet was my call to make and I workforce got this wrong,” CEO Tobi Lutke said, referring to a bet on post-pandemic growth in online shopping that went sour. Netflix (NASDAQ:NFLX) May 17 150 jobs “While we continue to invest significantly in 300 the business, we made these adjustments so that our costs June 23 jobs are growing in line with our slower revenue growth,” the company said. Coinbase (NASDAQ:COIN) Global June 14 1,100 jobs “We appear to be entering a recession after a 10+ year Inc economic boom. A recession could lead to another crypto winter, and could last for an extended period,” CEO Brian Armstrong said. OpenSea July 14 20% of “The reality is that we have entered an unprecedented its workforce combination of a crypto winter and broad macroeconomic instability, and we need to prepare the company for the possibility of a prolonged downturn,” CEO Devin Finzer said. Klarna May 23 10% of its “Since then (2021), we have seen a tragic and unnecessary workforce war in Ukraine unfold, a shift in consumer sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession,” CEO Sebastian Siemiatkowski said. Robinhood (NASDAQ:HOOD) April 26 9% of its Markets Inc full-time employees HIRING FREEZES:Company name Date Action taken Commentary Apple Inc (NASDAQ:AAPL) July 18 To slow hiring, The decision stems from a move to be more careful during spending next year uncertain times, though it is not a company-wide policy, in some units Bloomberg News reported, citing sources. Meta Platforms June 30 Cut plans to hire “If I had to bet, I’d say that this might be one of the Inc engineers by at worst downturns that we’ve seen in recent history,” CEO least 30% to Mark Zuckerberg told workers in a weekly employee Q&A ~6,000-7,000 session, audio of which was heard by Reuters. Twitter Inc (NYSE:TWTR) May 12 To pause most CEO Parag Agrawal, in a memo to employees seen by Reuters, hiring, review attributed the decision in part to a lack of confidence in existing job Twitter’s ability to reach aggressive growth targets it had offers to see if set in 2020. any “should be pulled back” Uber (NYSE:UBER) May 9 To scale back “We will treat hiring as a privilege and be deliberate Technologies Inc hiring, reduce about when and where we add headcount,” CEO Dara spending on Khosrowshahi said in a letter seen by Reuters. marketing, incentives Snap Inc (NYSE:SNAP) May 23 To slow hiring and “We continue to face rising inflation and interest rates, push some planned supply chain shortages and labor disruptions, platform hiring to 2023 policy changes, the impact of the war in Ukraine, and more,” CEO Evan Spiegel said in a memo to employees. Amazon.com Inc (NASDAQ:AMZN) July 28 Company is questioning its hiring plans, likely will not hire at same pace as in previous years Intel Corp (NASDAQ:INTC) June 8 Froze hiring in the division responsible for PC desktop and laptop chips Source: Company filings, media reports More

(Reuters) – Federal Reserve Chair Jerome Powell said this week he’s looking for compelling signs that inflation is cooling before the U.S. central bank will let up on what’s so far been its most aggressive set of interest rate hikes in decades.In data released on Friday, he largely got the opposite. Inflation by the Fed’s preferred measure, the personal consumption expenditures price index, jumped 6.8% in June, its steepest increase since 1982, and the rise in core prices – excluding food and energy prices and used by the Fed as an indicator of the inflation outlook – accelerated.Meanwhile labor costs surged 5.1% in the second quarter from a year earlier, the fastest pace in decades.The data prompted traders of futures tied to the Fed’s target policy to begin to price back in another 0.75-percentage-point interest rate increase at the Fed’s September policy meeting, putting the likelihood of that outcome at about a one-in-three, up from one-in-four earlier on Friday. “I’m convinced we’re going to have to do more in terms of interest rate increases,” Atlanta Fed President Raphael Bostic said in an interview on National Public Radio’s “Morning Edition” program before the release of the inflation and wage data. “Exactly how much and then what trajectory will depend on how the economy evolves over the next several weeks and months. We’re going to get a lot of data … before our next meeting” on Sept. 20-21.That data includes more than a dozen critical readings covering inflation, employment, consumer spending and economic growth.The Fed this week raised the target range for its policy rate to 2.25%-2.50%, and for the first time since the current cycle of rate hikes began in March, Powell declined to specify exactly how much he expected the central bank would have to raise rates at its next meeting.That, along with his comments about softening consumer spending and a nod to the eventual need for reducing the pace of Fed rate hikes, prompted some analysts and equities traders to conclude the Fed would stop its policy tightening soon. Much of Friday’s data appeared to undermine that thesis. The employment cost data, which Powell said on Wednesday he would be watching, “doesn’t provide any evidence that wage growth is slowing and leaves the Fed on track to lift the funds rate another 75bps at its September meeting,” Oxford Economics analysts wrote in a note.But there was some welcome news on the inflation front on Friday, as the University of Michigan’s consumer sentiment index showed U.S. consumers in July lowered their views of where inflation is headed. Respondents to the survey indicated they see inflation in the next year easing to a rate of 5.2% from their previous expectation of 5.3% in June. That is the lowest one-year price increase expectation since February. While that decline may provide some comfort that inflation expectations have not become unmoored, it is still far above the Fed’s 2% goal.The Fed’s fast pace of rate hikes this year has already begun to slow the economy, contributing to a negative reading on gross domestic product in the second quarter and fanning worries that the economy is already, or soon will be, in a recession. Powell is keeping his eye on that slowdown, but he was clear this week that with price stability of “bedrock” importance, his sharpest focus is getting inflation back on track toward the Fed’s goal.”We need to be confident that inflation is going to get back down to mandated consistent levels,” Powell said. More

Good evening,There were mixed signals on the health of the eurozone economy today as new data showed better than expected growth, but higher than anticipated inflation.The “flash” estimate for the second quarter showed gross domestic product rose 0.7 per cent, compared with 0.5 per cent in the previous three months, driven by a strong performance from a reanimated tourism sector, especially in Spain (with growth of 1.1 per cent) and Italy (1 per cent). Economists also welcomed a strengthening of Spain’s labour market, where the unemployment rate has hit its lowest level since 2008. An increase in permanent jobs has followed recent reforms, which aimed to cut the high proportion of the labour force on temporary contracts.France reported higher than forecast growth of 0.5 per cent, thanks to strong exports and a boost from tourism, tempered by concerns that domestic demand remains flat.German growth was also flat as household and government spending helped buoy economic activity despite the higher cost of oil and gas imports. Concerns remain however that a further squeeze on gas supplies from Russia could tip the country into a recession.Eurozone inflation meanwhile sped up from 8.6 per cent in June to 8.9 per cent in July, thanks to a 40 per cent jump in energy prices and a 10 per cent increase in food costs. Stripping out these volatile items left an increase of 4 per cent — still double the ECB’s target rate of 2 per cent. In Germany, the eurozone’s biggest economy, inflation rose to 8.5 per cent in July from 8.2 per cent in June, fuelled by a 14.8 per cent jump in food prices.The war in Ukraine — and the gas crisis in particular — means that the outlook for the eurozone in the second half of the year is bleak and looks even bleaker given the turmoil in Italian politics. Consumer confidence is already at its lowest level ever, according to European Commission data.Today’s inflation figures increase the likelihood that the European Central Bank, which last week raised interest rates for the first time in more than a decade, will announce another 50 basis point increase in September.Compare rising prices country by country with our global inflation trackerLatest newsOil prices surge $4 a barrel as chances of Opec+ supply boost dim (Reuters)US consumer sentiment remains near record lowRMT union members at Arriva Rail London vote for strike action (PA)For up-to-the-minute news updates, visit our live blogNeed to know: the economyNew inflation and wage data offered little relief for the US Federal Reserve after it raised interest rates by 0.75 points for the second consecutive month on Wednesday. The core personal consumption expenditures index, the Fed’s preferred measure of inflation, rose 1 per cent in June, lifting the annual rate to 6.8 per cent from 6.3 per cent. Stripping out volatile items such as food and energy left the “core” PCE reading up 4.8 per cent, still more than double the Fed’s target. It follows yesterday’s news that the US economy shrank for the second quarter in a row by 0.9 per cent on an annualised basis. US economics editor Colby Smith tackles the big question: Is the US in recession? (TLDR: it depends.)Latest for the UK and EuropeConsumer borrowing in the UK doubled last month, according to the Bank of England, as people resorted to credit cards and other forms of debt to cope with the surging cost of living.The future of UK economic policy continues to dominate the hustings for the next prime minister. Bookies’ favourite Liz Truss dismissed the idea of further windfall taxes on energy companies, even as Centrica, the owner of British Gas and the country’s biggest energy retailer, reinstated its dividend and reported that operating profits have increased more than fivefold during the energy crisis.Poor productivity is recognised as one of the main problems holding the UK back. Columnist Tim Harford went to Legoland for inspiration, but bemoaned the fact that its strategy of focusing on the good stuff and “shoving the rest down the memory hole” now appears to be the central plank of government strategy.Global latestUS president Joe Biden is set for two significant legislative wins ahead of November’s midterm elections. A $280bn package authorises subsidies for the semiconductor industry while a sweeping bill on tax, climate and social spending also looks set to pass.Argentina has appointed its third official to take charge of the country’s troubled economy in less than a month. Sergio Massa, a Peronist leader in Congress, will be responsible for a ministry that oversees economic, manufacturing and agricultural policy.Companies and investors are abandoning most of Latin America’s stock markets, writes LatAm editor Michael Stott, because of a decade of slow growth, weak currencies and bad headlines. At the end of 2012, the region accounted for just 6.4 per cent of MSCI’s global emerging market stock index — less than a third of its weight in 2010.China’s central bank has proposed an ambitious attempt to revive the country’s debt-stricken property sector with a $148bn bailout for real estate projects. The property downturn played a large role in reducing economic growth to just 0.4 per cent in the second quarter.Need to know: businessPositive results from Big Tech have put stock markets on track for their best month since November 2020. The latest come from Amazon, which reported better than expected revenues and an improved outlook, and from Apple, which recorded growth in revenues despite supply chain problems in China. However, Intel reported an unexpected drop in revenue and reduced its forecasts, sending its shares plunging.Energy is the other standout sector as companies reap the dividend of soaring prices. ExxonMobil and Chevron both reported record quarterly profits, while Shell broke its profit record for the second quarter in a row and announced a $6bn share buyback.British Airways parent IAG reported its first profit since the pandemic hit, despite continuing industry-wide disruption. In the US, Southwest recorded record profits as demand surged but warned of problems ahead. JetBlue agreed to buy rival Spirit for $7.6bn to create the fifth-largest US airline, although the deal may face regulatory challenges.Carmaker results highlighted strong demand at the top end of the market. Renault upgraded its forecasts as it focuses on more expensive models, while Bentley reported increased profits thanks to sales of its luxury vehicles. Stellantis — producer of the Jeep, Alfa Romeo, Peugeot and Fiat brands — was able to shrug off supply problems to increase pricing and report net profits up by a third.There was less good news for UK car manufacturing, as the global chip shortage means it will not return to producing 1mn vehicles a year until at least 2025 — two years later than expected. Losses have soared at Aston Martin because of supply chain bottlenecks.Meanwhile, another sector benefiting from the demand from luxury items is the drinks market, where Diageo is profiting from booming sales of “super premium plus” spirits brands such as Don Julio tequila and Bulleit bourbon. Colgate became the latest large consumer group to announce price rises as it passed on increasing costs to customers. Nestlé yesterday said increasing prices 6.5 per cent had enabled it to raise its sales forecast for the year. Hershey too appears to have got away with raising prices.Science round upThe latest wave of Covid cases in England, Wales and Scotland, driven by the BA.5 variant, appears to be in retreat, according to official data. About one in 20 people were infected in the week to July 20, compared with one in 17 the previous week. The data are collected from private households and exclude infections in hospitals or care homes.There has been a sharp rise in obesity in many countries during the pandemic because of reasons such as disrupted routines and increased stress. Chief data reporter John Burn-Murdoch says it’s time to shift the focus from individual responsibility to how we live and work.A new report has put a price on the economic impact of long Covid in the UK. On average, sufferers were losing about £1,100 a month in earnings, adding up to £1.5bn in aggregate across the economy. Official data for May showed that about 2mn people had lasting Covid symptoms.Corporate results this week offered some pointers on the development of Covid vaccines and therapies. Pfizer’s Paxlovid antiviral drug is one of the fastest selling medicines in history, with annual sales this year forecast to hit $22bn. There could however be a surplus of 70mn doses by the end of the year as patient uptake slows. Strong sales of the Evusheld Covid-19 antibody treatment, which helps protect people who do not respond to vaccines, gave a boost to AstraZeneca in the first half of the year. Sales hit $445mn, almost equalling revenues from the company’s vaccine developed with the University of Oxford. Evusheld sales are however expected to increase, unlike sales of the jab.Get the latest worldwide picture with our vaccine trackerSome good news The Commonwealth Games, which got under way in Britain’s second city of Birmingham this morning, is being billed as a huge advance for athletes with a disability. Unlike other major events, the para-sport programme is fully integrated, with all medals contributing to the grand total for each country. Here are the BBC’s tips on what to watch.GB Paralympic champion Hannah Cockroft, seen here in a 2013 race, makes her Commonwealth Games debut in the T33/34 100m © Suzanne Plunkett/Reuters More

American holidaymakers lucky enough to make it abroad this summer may find themselves pleasantly surprised by the might of the dollar — up 10 per cent this year against other major currencies. Cheap ice creams on the beach await. But this strength is bad news, and a side-effect of the US having both a serious central bank and a very serious inflation problem. The major driver of the dollar’s strength has been the rise in US interest rates — from around zero at the start of the year to, as of this week, between 2.25 and 2.5 per cent. Tightening more quickly than other major economies has powered the surge in the dollar’s value. The Federal Reserve’s rush for higher rates is merited. Over the past 12 months, the US consumer price index rose by a colossal 9.1 per cent. Jay Powell, chair of the Fed, said: “We’re going to be focused on getting inflation back down . . . That’s something . . . we simply must do.” It is too late to stop the broad price surge that is now well in train, but not too late to fight to keep expectations anchored so inflation returns to earth.But the Fed’s task is getting more complex: this week, we learnt that the US economy is cooling. How bad is it? The latest GDP figures showed a quarter of slight decline. There is some evidence of higher interest rates starting to bite on investment. But consumers are still spending and the job market remains hot. This is not yet a full-blown recession.The growing evidence for a slowdown does, however, mean the point where the Fed should stop hiking could be with us quite soon — but not quite yet. Rather unusually, markets also expect that the Fed will start cutting rates quite rapidly, too. In the meantime, however, the gap between rates in the US and the rest of the world is an issue. What is good for the American holiday-maker is, alas, not good for the world. The strong dollar directly affects America’s trading partners. But one of the peculiarities of the world economy is the extent to which the greenback is used when pricing goods and services among people who have no link to the USA — a recent IMF paper put it at around 40 per cent of invoices from a large sample of countries. Food and fuel — the cornerstones of the inflation surge — are usually quoted in terms of the US currency. But this is not a mere book-keeping footnote: the IMF also found prices for businesses doing trade between two distant countries can be much more sensitive to the strength of the dollar than the relative levels of the two local currencies. So a strong dollar can create inflationary ripples around the world — including for countries that do not even trade very much with the US.The upshot of these forces is that other central banks may need to act on the dollar’s strength — because a strong dollar sluices price rises directly into their economies. The Fed remains single-mindedly focused on domestic inflation, and there is little appetite for multilateral action. So the only solution for other central banks is likely to be raising rates a bit higher and perhaps a bit faster than they otherwise would.There was some good news from the eurozone this week, with stronger than expected numbers on output. This may make it easier for Europe to bear further hikes. But the world’s strong dollar problem speaks to the extraordinary complexity of this moment for central banks. It is not enough to cope with war in Europe, a commodity surge and the aftershocks of an epochal pandemic. Now they need to worry about whether the people in Washington are accidentally sending more inflation their way, along with America’s big-spending holidaymakers. More

The amount of extra debt taken on by UK consumers doubled last month, according to data from the Bank of England on Friday, raising fears that people are resorting to credit cards and other forms of borrowing to fund increases in the cost of living.The BoE data found that UK consumers borrowed a net £1.8bn in June, up from £0.9bn in May, most of which was on credit cards. The annual growth rate for consumer credit hit 6.5 per cent, the highest level since before the coronavirus pandemic. “We are seeing a significant increase in consumer borrowing, with many households feeling the strain of living costs increasing, prompting consumers to fund their expenditure through borrowing,” said Shushill Suglani, senior economist at consultancy Cebr. A sharp increase in fuel bills and food prices pushed inflation to a 40-year high of 9.4 per cent last month, piling pressure on household budgets. According to Cebr, the jump in utility bills has left outgoings exceeding income for many householders. The situation is expected to deteriorate in the coming months as inflation heads towards double digits. Consultancy BFY Group this week warned that gas and electricity bills for some of the most vulnerable households could rise to £500 a month in January. The rise in consumer borrowing comes alongside one in interest rates. The BoE in June increased the base rate by 0.25 percentage points to 1.25 per cent and is expected to lift it again next week — potentially by 0.5 percentage points. Higher interest rates are already dampening the housing market, with the data showing that net mortgage borrowing by individuals dropped sharply to £5.3bn in June, down from £8bn in May. Meanwhile, approvals for house purchases, an indicator of future borrowing, fell to 63,700 in June, down from 65,700 in May. The June figure is below the average in the 12 months before the pandemic.

“Mortgage approvals slipped back to below 2019 levels in June supporting our view that higher interest rates will cause housing market activity to slump over the next two years,” said Andrew Wishart, property economist at Capital Economics. “Further rises in bank rate and narrow interest margins on mortgage lending at present suggest that mortgage rates will continue to climb, causing demand to deteriorate further over the coming months,” he added. Capital Economics expects mortgage approvals and transactions to slip to the lowest level since 2012 next year. More

Economic data in the US are sending mixed messages, complicating the answer to a seemingly simple question: is the world’s largest economy in a recession?Figures from the commerce department on Thursday showing a second consecutive quarter of decline in gross domestic product intensified what has become a politically charged debate. News of the second straight decline — a common marker of a recession — followed signs that business activity across the country is beginning to slow. The US housing market is teetering and consumers are increasingly downbeat as the Federal Reserve ramps up its efforts to quell the highest inflation in more than four decades with big interest rate rises. The official arbiters of whether or not the US is in recession — a group of economists at the National Bureau of Economic Research — are yet to make their formal judgment. But policymakers in the White House have already made theirs. Ahead of Thursday’s report, Treasury secretary Janet Yellen said she would be “amazed” if the NBER declared the current moment a recession. She doubled down on that view at a press conference after the data release, noting that the substantial job losses, business shutdowns and strained budgets that typically accompany a recession are “not what we’re seeing right now”. So too has the Fed. Jay Powell, central bank chair, cautioned on Wednesday that GDP figures are revised multiple times and that the first iteration should be taken “with a grain of salt”.Yet Republicans seized on Thursday’s data, immediately branding it “Joe Biden’s recession”. Those who have embraced the notion that the US is in recession point to the fact that whenever there have been consecutive GDP contractions in the past, a recession is — more often than not — eventually called by the NBER. “The ‘official’ recession definition is not back-to-back quarters of negative real GDP,” said David Rosenberg, chief economist and president of Rosenberg Research. “But every time this has happened in the postwar period, the economy just happened to be in recession.”

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Most economists share the White House and the Fed’s view that the US is not yet in recession, but their confidence that the economy can avoid that outcome at a later date has declined markedly.“Based on the GDP data alone, we cannot conclude that we are in a recession right now,” said Blerina Uruçi, US economist at T Rowe Price. “This could be the prelude to a recession . . . and we need to be cautious not to discount anything right now, because there’s so much uncertainty.”The NBER characterises one as a “significant decline in economic activity that is spread across the economy and lasts more than a few months”.The organisation’s committee of eight economists convene in closed-door meetings to make that determination, typically with a multi-month or year-long lag. The judgment is based on measures including monthly jobs growth, consumer spending on goods and services, and industrial production.By those standards, the current economic backdrop unequivocally does not meet that threshold, say officials at the Fed and the White House. Last month, the economy added a healthy 372,000 jobs and the unemployment rate steadied at a historically low level of 3.6 per cent. For every unemployed person, there are roughly two vacancies, making this one of the tightest labour markets in recent history.“We’ve never had a recession without lay-offs, [and] I don’t think we are close to a full-blown cycle of lay-offs. There’s just no evidence of that,” said Aneta Markowska, chief financial economist at Jefferies.Economists point to the Sahm Rule. Developed by former Fed staffer Claudia Sahm, the rule stipulates that a recession takes root when the three-month moving average of the unemployment rate rises at least half a percentage point above its low over the past 12 months. By this metric, the unemployment rate would need to have surpassed 4 per cent to say the US is in recession. The GDP data did, however, include signs of weakness beyond the headline figure that suggest a far less buoyant consumer and flagging investments. Economists at Citigroup went so far as to say that mid-2022 may mark a peak in activity.“This is a pretty broad-based slowing of spending,” added Jonathan Millar, a former Fed economist now at Barclays. While he pushed back on the notion that the US economy would tip into a recession soon, he said it was a “very strong possibility” that it would happen next year and it “really depends going forward on just how resilient we see the service sector”.

The US central bank is expected to push ahead with its plans to tighten monetary policy even as the economy slows, having lifted interest rates by another 0.75 percentage points this week for the second consecutive meeting. Powell signalled further increases to come and market participants expect the benchmark policy rate to rise to around 3.5 per cent by year-end, a full percentage point higher than today’s level.The Fed chair has maintained that rate increases can bring down inflation without causing painful job losses or a sharp downturn, but conceded again this week that the path to achieve that outcome has “clearly narrowed . . . and may narrow further”. He also affirmed the central bank remains strictly focused on curbing high inflation and that failing to do so would be a worse outcome than constraining the economy excessively — intensifying concerns about an eventual recession.“This is what happens in an environment where the Fed is trying to have their policy be restrictive,” said Andrew Patterson, senior international economist at Vanguard. “You’re going to start to see turns for the worse in output and eventual upticks in unemployment in an effort to try to bring down inflation.” More