Fears of a recession in the USA are considered to be a trigger for the slide in the markets. Now the pressure on the American central bank to lower interest rates is increasing.
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When the global stock markets experienced a “Black Monday” on August 5 – with price drops the likes of which had not been seen for years – one factor emerged in many explanations as a possible reason: an impending recession in the USA. The investment bank Goldman Sachs raised the probability of such a scenario from 15 to 25 percent, speaking of a “slowdown of the economy”.
And of course, Donald Trump could not be left out: The Republican US presidential candidate warned on his own social network Truth Social that if his opponent Kamala Harris were elected, there would be a risk of a “Kamala crash and a great depression in 2024”.
At first glance, these reactions seemed strange: The US economy achieved surprisingly high growth of 2.8 percent in the second quarter of 2024, despite the fact that the central bank is taking a fairly tough approach to inflation. Inflation has recently stabilized at a high level. And Americans spent significantly more on goods and services in the second quarter than at the beginning of the year.
But even though the markets recovered for the time being and the main reason for the collapse was probably the change in the interest rate differential between Japan and the USA, the risks to the US economy cannot be completely dismissed. The country has been through a historic low phase with an unemployment rate of under four percent, but that has been over since May. In fact, the figure has been rising slowly but steadily since then. Whether the low number of new jobs added in July was just a statistical outlier remains to be seen – but the figure was enough to make a number of market participants uneasy.
Experts see no signs of recession yet
There were other bad signals: The Institute for Supply Management’s industrial activity index fell to its lowest level since November 2023. And the , measured by a team at the University of Michigan, has been on the decline for several months.
But does all this actually indicate an impending recession? Most professional observers are still dismissing it. Holger Schmieding, chief economist at Berenberg Bank, speaks of “good macroeconomic data” and expects the US economy to grow by 2.5 percent in 2024. And Goldman Sachs, the institute that now expects a higher probability of recession, also points out that the risk is “limited”. “On the whole,” the US economy looks “good,” writes a team led by economist Jan Hatzius.
When will interest rates fall?
Whether this will continue to be the case could depend crucially on an interest rate move by the US Federal Reserve. For months, people have been watching closely to see when the Fed will lower its current key interest rate of 5.25 to 5.5 percent and thus give the US economy a helping hand. The central bankers have so far avoided doing so, also in view of the long-lasting inflation rate of over three percent. In the meantime, however, the problem seems to have been contained, and a value below the three percent mark could soon be reached again for the first time since May 2021.
Paul Krugman, a star economist close to the ruling Democrats, wrote in his : “It is already clear that the Fed made a mistake by not lowering interest rates last week. In fact, it probably should have started doing so months ago.” The Nobel Prize winner for economics compared the US economy to a patient who is diagnosed as being at risk of diabetes. The bad news: Doctors see enough warning signs of an impending disease. The good news: There is still time to do something about it.
Source: Stern
