Debunks misperception that it is exclusively based on GDP, points to historically strong labor market and solid consumer spending
Appearing on NBC’s Meet the Press with Chuck Todd, Treasury Secretary Janet Yellen explained the state of the economy, including its historic strengths, efforts to bring down inflation, and how to interpret the initial reading of second quarter GDP being announced this week. As she explains, the technical and actual definition of a recession takes into account “a broad range of data” and states “this is not an economy that’s in recession.”
TODD: “If the technical definition is two quarters of contraction, you’re saying that’s not a recession?”
YELLEN: “That’s not the technical definition. There is an organization called the National Bureau of Economic Research that looks at a broad range of data in deciding whether or not there is a recession. And most of the data that they look at right now continues to be strong. I would be amazed if they would declare this period to be a recession, even if it happens to have two quarters of negative growth. We have a very strong labor market. when you are creating almost 400,000 jobs a month, that is not a recession.”
Secretary Yellen also went further in-depth, explaining that some economic slow-down is healthy right now with such a strong labor market, as the Federal Reserve addresses inflation and we transition to steady and sustainable growth, and discussed the actions the Biden Administration has been taking to lower prices for the American people.
YELLEN: “Well, look, the economy is slowing down. Last year it grew very rapidly at about 5.5%, and that succeeded in putting people back to work who had lost their jobs during the pandemic. The labor market is now extremely strong. Even just during the last three months, job gains averaged 375,000. This is not an economy that’s in recession. But we’re in a period of transition in which growth is slowing and that’s necessary and appropriate and we need to be growing at a steady and sustainable pace. So there is a slowdown and businesses can see that and that’s appropriate, given that people now have jobs and we have a strong labor market.
“But you don’t see any of the signs now — a recession is a broad-based contraction that affects many sectors of the economy—we just don’t have that. Consumer spending remains solid. It’s continuing to grow. Output, industrial output has grown in five of the six most recent months. Credit quality remains very strong. household balance sheets are generally in good shape.
“But inflation is way too high. And, you know, the Fed is charged with putting in place policies that will bring inflation down and I expect them to be successful. The Administration, for its part, is supplementing those Fed policies with things we can do. We’ve cut the deficit by a record one-and-a-half trillion dollars this year, releases of gas from the Strategic Petroleum Reserve are putting some downward pressure on gas prices. we have seen gas prices just in recent weeks come down by about 50 cents, and there should be more in the pipeline. And hopefully we will pass a bill that will lower prescription drug costs and maintain current levels of health care costs.”
Powell says economy may be entering 'new normal' after pandemic – BNN Bloomberg
(Bloomberg) — Federal Reserve Chair Jerome Powell said the US economy may be entering a “new normal” following disruptions from the Covid-19 pandemic.
“We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders Friday at a Fed Listens event in Washington. “As policy makers we’re committed to using our tools to help see the economy through what has been a uniquely challenging period.”
In his brief welcoming marks, Powell didn’t discuss the outlook for interest rates or offer more specifics on the economic outlook. All seven of the Board’s governors were present for the panel with Philip Jefferson and Lisa Cook making public comments in their roles as Fed officials for the first time.
Fed officials heard a consistent message that shortages and scarcity were still afflicting businesses along with high labor turnover. Speaking about the small- and medium-sized companies they consult with, Cara Walton, for Harbour Results in Southfield, Michigan, said her clients “can’t find people,” and when they do find them, turnover is high.
US central bankers raised their benchmark lending rate by three quarters of a percentage points this week for a third straight time — the most aggressive pace of tightening seen since the Fed battled inflation back in the 1980s.
Powell and his colleagues are moving rapidly to reduce the highest inflation in nearly 40 years after being slow to spot the threat of broadening price pressures. Critics have slammed them for that error, although inflation has also been worsened by Russia’s invasion of Ukraine, which boosted food and energy prices around the world.
Fed Vice Chair Lael Brainard, speaking later during the event when the panel considered how families are adapting to the post-pandemic economy, noted that price pressures were hitting the most vulnerable particularly hard.
“We have seen high wage growth among the lowest income workers but looking overall, wages haven’t kept up with inflation and inflation is very high,” she said. “If we look at who bares the burden, everybody is affected by high inflation but of course it puts special burdens on lower income families as well as on people with fixed incomes.”
US consumer prices rose 8.3% in the 12 months through August and officials have vowed to cool them even if that means causing harm to the US economy and its workers.
Officials couch this as an effort to slow excess demand and put the labor market back into “balance” — a euphemism that glosses over the fact many people could lose their jobs in the process. The labor market has so far remained strong, with unemployment at 3.7%, but policy makers this week forecast that would rise to around 4.4% next year as they continue to raise interest rates.
Fed Listens events have been held around the US since 2019 as the central bank sought public input on a review of its approach to monetary policy. That overhaul was completed in 2021 but the Fed has kept them going to maintain public engagement at a time when its actions remain front-page news.
In closing, Powell thanked the panelists for sharing their experiences of the post-pandemic economy.
“We get to spend a lot of time with data, here at the Fed. But I personally would say I need to hear narratives, I need to hear stories, about what’s really going on out there for it all to make sense,” he said. “We all learned a lot from you today.”
(Adds comment from closing remark from Powell in final paragraph.)
©2022 Bloomberg L.P.
Charting the Global Economy: Fed Headlines Concert of Rate Hikes – BNN Bloomberg
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The Federal Reserve, Bank of England and Sweden’s Riksbank were just a handful of central banks raising interest rates this week, underscoring the drastic tightening cycle underway as inflation grips the global economy.
Switzerland, South Africa also boosted their benchmark rates. Indonesia, Philippines and Vietnam raised borrowing costs as well following the Fed’s decision.
On the other hand, Turkey surprised with another rate cut, despite inflation running at a 24-year high and the lira trading at a record low. Officials in Hungary may deliver at least one more hike before considering ending the steepest monetary tightening cycle in the European Union.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
The Fed headlined a marathon week of interest-rate hikes, which also stretched to central bankers in Taiwan, Sweden and Mongolia. Meanwhile, Brazil and Norway indicated they may take a time-out from their tightening of monetary policy. The Bank of Japan stuck with its ultra-low rates and Governor Haruhiko Kuroda said there’s little prospect of a near-term rate boost.
The price of copper — used in everything from computer chips and toasters to power systems and air conditioners — has fallen by nearly a third since March. Still, some of the largest miners and metals traders are warning that in just a couple of years’ time, a massive shortfall will emerge for the world’s most critical metal.
Fed Chair Jerome Powell vowed the US central bank would crush inflation after officials raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.
Sales of previously owned homes fell for the seventh straight month in August as rising mortgage rates continued to erode affordability and deal a considerable blow to the housing market. The string of declines was the longest since the housing market crashed in 2007.
More consumers are saddled with credit-card debts for longer periods of time, according to a survey, struggling to pay down amid high inflation and rising interest rates. Sixty percent of credit-card debtors say they have been in credit-card debt for at least a year, up from 50% a year ago, CreditCards.com said.
The risk of a euro-area recession has reached its highest level since July 2020 as concerns grow that a winter energy squeeze will cause a slump in economic activity. Economists polled by Bloomberg now put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey.
Dockers at Liverpool, Britain’s fourth-biggest container port, voted unanimously to reject their employer’s latest pay offer — and walk off the job for two weeks in a strike that got into full swing on Tuesday. It’s the latest outbreak of the labor unrest that’s sweeping through key choke points of the world economy.
Singapore looks like an attractive location for firms wanting to exit Hong Kong, but they may find a move to the city-state hits their bottom line more than expected. With inflation soaring to the highest level in 14 years, expenses including the hiring of talent, office space and utilities are rising at a faster pace in Singapore than in its financial rival, where price increases have been more modest.
South Korea’s early trade data showed exports are only just still growing in September in a sign of fallout from lockdowns in China and a struggling global economy. Headline exports dropped 8.7%, led by a 14% decline in shipments to China.
Emerging Asian markets are reaping the rewards of years of building up foreign-exchange reserves as they become a preferred destination for risk investors. Even as the dollar rallied, emerging Asia’s currencies are mostly faring better than traditional havens such as the yen and euro.
Mexico’s inflation remained little changed in early September, giving Banxico minimal room to reduce the pace of interest rate hikes at its meeting next week.
©2022 Bloomberg L.P.
TSX slumps as oil falls below $80 and economic gloom settles in – CBC News
Canada’s benchmark stock index dropped heavily on Friday as prospects of a global recession cause investors to sell first and ask questions later.
The S&P/TSX Composite Index was off by more than 520 points or 2.75 per cent to close at 18,480, dragged down by a plunge in the price of oil. That’s the lowest level for the benchmark Canadian stock index since July.
The benchmark price of crude oil in North America lost almost $5 to close at $79.13 a barrel, its lowest price since January. The catalyst for oil’s decline seems to have been central banks signaling this week that they are so committed to reining in inflation that they are willing to create a recession to achieve it.
The U.S. Federal Reserve hiked its benchmark interest rate on Wednesday, and nine other countries around the world followed suit the next day. That will help bring down inflation, but it will likely come at great cost to the economy.
“Clearly what they are saying is they are so determined to bring inflation down that they are going to bring down the economy in the process,” said John Zecher, the founder of Toronto-based money manager J Zechner & Associates. “That’s the way the market is reading it … They aren’t going to stop until the economy turns down.”
Oil price down to lowest since January
A recession would lead to much less demand for energy, which is why oil sold off. About a fifth of the companies on the TSX are in the energy sector, and they were among the biggest losers Friday. Shares in Suncor, Cenovus, MEG Energy and Crescent Point all lost more than eight per cent on the day.
More and more economic indicators are starting to suggest Canada’s economy either already has derailed or is about to. Employment numbers last week showed the economy has lost jobs for three months in a row, and retail sales data on Friday showed that Canadians are putting away their wallets once more.
Stock markets are responding to that gloom, and some analysts think there is a lot more pain to come.
“The lows that we saw recently in the summer months are going to be challenged in the next couple of days to weeks,” said Larry Berman, chief investment officer with Toronto-based money manager QWealth, in an interview. “The market [isn’t] priced for what the central banks are going to do.”
The Canadian dollar dipped as low as 73.61 cents US, its lowest level in more than two years.
Shares in New York also sold off, with the Dow Jones Industrial Average closing down almost 500 points to 29,590 — its lowest level of the year.
“Over the next couple of weeks, long-term investors may hesitate buying into weakness,” said Edward Moya, an analyst with foreign exchange firm Oanda. “How far we go below the summer lows is anyone’s guess.”
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