An often-overlooked economic indicator showed on Friday that the US economy is headed for recession – or already in recession – as the Federal Reserve tries to rein in inflation with a series of rapid interest rate hikes.
The Conference Board’s index of leading economic indicators showed conditions worsened further in October, with the measure falling 0.8% from the previous month. This followed a 0.5% decline in September.
“The U.S. LEI fell for the eighth month in a row, suggesting the economy is likely in recession,” said Ataman Ozyildirim, senior director of economic research at The Conference Board.
The decline reflects a worsening outlook among consumers, who are increasingly worried about higher interest rates and stubbornly high inflation, as well as a prolonged downturn in the housing market.
DEMOCRATS ACCUSE FED’S ‘DANGEROUS’ RATE INCREASE, WARNING OF SPREADING JOB LOSSES
On Wall Street, it is increasingly expected that he will The Fed will cause an economic downturn as he raises interest rates at the fastest pace in three decades to catch up with runaway inflation.
Officials this month approved a fourth consecutive 75-basis-point interest rate hike, lifting the federal funds rate to a range of 3.75% to 4% — close to restrictive levels — and showed no signs of pausing rate hikes.
In a worrying development, the Fed’s rate hikes have so far failed to tame inflation: The government reported this month that the consumer price index jumped 7.7% in October from a year earlier, hovering near a 40-year high.
THE FED RAISES INTEREST RATES BY 75 BASIS POINTS FOR THE FOURTH MONTH IN A ROW
This indicates that the Fed will have to continue its aggressive course, increasing the likelihood that it will crush consumer demand and cause unemployment to rise.
“Let me say this,” Fed Chairman Jerome Powell told reporters earlier this month. “It’s very premature to think about pausing. When people hear delays, they think about pauses. It’s very premature, in my opinion, to talk about pausing our rate increases. We have a way to go.”
An increase in interest rates tends to create higher rates on consumer and business loans, which slows down the economy forcing employers to reduce spending.
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Economic growth has already slowed in the first two quarters of the year, with gross domestic product — the broadest measure of goods and services produced domestically — shrinking by 1.6% in the winter and 0.6% in spring.
However, it recovered over the summer, with GDP growing by 2.6% year-on-year in the three-month period from July to September.