The U.S. is now entering a recession
The U.S. economy has faced a number of factors in recent years that may increase the likelihood of a recession. My expectations regarding the recession were not about whether it would happen or not. The fact that a recession would occur was already confirmed in 2023, and the question was only when it would start and how soon it would happen. During the current crisis, the U.S. postponed the recession by all possible means, but eventually, all confirmations of the recession's onset were received. Now the U.S. is triggering a new global crisis, which will be accompanied by all the resulting consequences, including its spread around the world.
Let’s take a closer look at the key aspects:
1. Inflation and Monetary Policy
- High Inflation: Inflation in the U.S. has long remained above the target level of 2%, forcing the Federal Reserve (Fed) to take measures to contain it. The rapid increase in interest rates to fight inflation may slow economic growth, raising borrowing costs for businesses and consumers.
- Tight Monetary Policy: The Fed has raised interest rates to a level that many economists consider "restrictive," making it harder to access credit, reducing investment activity, and limiting consumer spending.
2. Labor Market Situation
- Labor Market Challenges: While the U.S. labor market has been strong for a long time (low unemployment, steady wage growth), there are signs that companies are starting to cut back on hiring, and layoffs are increasing. The reduction in jobs in the tech sector in late 2023 and early 2024 could be a precursor to slowing economic activity.
- Declining Productivity: In some industries, productivity is falling, which may indicate an overheated economy and a subsequent slowdown in activity.
3. Consumer Activity
- Rising Borrowing Costs: Higher interest rates are leading to increased costs for mortgages and consumer loans, which reduces spending. With 70% of the U.S. economy dependent on consumer spending, a decrease in activity could lead to a slowdown in GDP growth.
- Decline in Real Incomes: Despite wage growth, high inflation can erode real incomes, which limits consumption.
4. Geopolitical Factors and Instability
- Geopolitical Instability: A complex geopolitical environment is driving up costs for energy, food, and other key goods, which could negatively impact the U.S. economy.
- Supply Chain Issues: Supply chain disruptions caused by the pandemic and geopolitical risks, although somewhat eased, continue to affect production processes and trade.
5. Debt Burden and Budgetary Issues
- Government Debt: U.S. debt continues to rise, and the government is struggling to service it in an environment of high interest rates. This increases fiscal pressure and reduces the ability to use budgetary stimulus in the event of a recession.
- Budgetary Constraints: The reduction in budget programs and fiscal stimulus introduced in response to the COVID-19 pandemic may also contribute to slowing economic activity.
6. Financial Markets
- Stock Market Volatility: Instability in financial markets and falling asset values can reduce household and investor wealth, leading to lower consumption and investment.
- Credit Risks: Rising interest rates may lead to an increase in loan defaults and debt obligations, worsening financial stability.
Forecast and Probability of a Recession
- According to estimates from many analysts and economists, the probability of a recession in the U.S. in 2024 remains high — around 50-60%, given current economic factors.
- The main risks are associated with the overly tight monetary policy of the Fed, geopolitical instability, and rising borrowing costs, which limit activity from both consumers and businesses.
- However, some economists believe that a soft landing (without a deep downturn) is possible if the Fed can balance inflation and economic growth.
Thus, the recession is confirmed.
Let’s take a closer look at the key aspects:
1. Inflation and Monetary Policy
- High Inflation: Inflation in the U.S. has long remained above the target level of 2%, forcing the Federal Reserve (Fed) to take measures to contain it. The rapid increase in interest rates to fight inflation may slow economic growth, raising borrowing costs for businesses and consumers.
- Tight Monetary Policy: The Fed has raised interest rates to a level that many economists consider "restrictive," making it harder to access credit, reducing investment activity, and limiting consumer spending.
2. Labor Market Situation
- Labor Market Challenges: While the U.S. labor market has been strong for a long time (low unemployment, steady wage growth), there are signs that companies are starting to cut back on hiring, and layoffs are increasing. The reduction in jobs in the tech sector in late 2023 and early 2024 could be a precursor to slowing economic activity.
- Declining Productivity: In some industries, productivity is falling, which may indicate an overheated economy and a subsequent slowdown in activity.
3. Consumer Activity
- Rising Borrowing Costs: Higher interest rates are leading to increased costs for mortgages and consumer loans, which reduces spending. With 70% of the U.S. economy dependent on consumer spending, a decrease in activity could lead to a slowdown in GDP growth.
- Decline in Real Incomes: Despite wage growth, high inflation can erode real incomes, which limits consumption.
4. Geopolitical Factors and Instability
- Geopolitical Instability: A complex geopolitical environment is driving up costs for energy, food, and other key goods, which could negatively impact the U.S. economy.
- Supply Chain Issues: Supply chain disruptions caused by the pandemic and geopolitical risks, although somewhat eased, continue to affect production processes and trade.
5. Debt Burden and Budgetary Issues
- Government Debt: U.S. debt continues to rise, and the government is struggling to service it in an environment of high interest rates. This increases fiscal pressure and reduces the ability to use budgetary stimulus in the event of a recession.
- Budgetary Constraints: The reduction in budget programs and fiscal stimulus introduced in response to the COVID-19 pandemic may also contribute to slowing economic activity.
6. Financial Markets
- Stock Market Volatility: Instability in financial markets and falling asset values can reduce household and investor wealth, leading to lower consumption and investment.
- Credit Risks: Rising interest rates may lead to an increase in loan defaults and debt obligations, worsening financial stability.
Forecast and Probability of a Recession
- According to estimates from many analysts and economists, the probability of a recession in the U.S. in 2024 remains high — around 50-60%, given current economic factors.
- The main risks are associated with the overly tight monetary policy of the Fed, geopolitical instability, and rising borrowing costs, which limit activity from both consumers and businesses.
- However, some economists believe that a soft landing (without a deep downturn) is possible if the Fed can balance inflation and economic growth.
Thus, the recession is confirmed.
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