Bloomberg News reports that the economy is sending out pretty conflicting signals. Suppose on a single day some reports a recession is about to happen or already underway. Another report implies that the assumptions are baseless and predict stellar growth. These discrepancies are sending conflicting vibes among the population. The Governor of Federal Reserve, Christopher Waller, on a webcast on July 7, said it is very odd for an economy adding 2.5 million workers the productivity slows.
The Conflicting Reports
Former economist of White House Jason Furman has admitted that he is also confused about the contradictory vibes. He also said that a lot of confusion and uncertainty prevails galore, as stated by the Professor of Harvard.
Now that 2022 is already underway, it is an appropriate time to account for what people know or at least assume and what they are not aware of in this economy that is sending puzzling signals.
There is a significant slowing down in growth; however, that was expected when the GDP surged 5.7% in the previous year, the fastest since 1984. It was powered by a mélange of government programs, stimulus checks, extra unemployment, and increased child tax credit that no longer exists. Yet, there has been a rapid deceleration which is sharper than was predicted. On July 12th, the International Monetary Fund curbed the forecast for US growth in the current year to 2.3%, which dropped from 3.7%, which was the prediction in April.
Bloomberg News reports the markdown can be attributed to the inflation that is skyrocketing and the tightening monetary policy of the Fed. It is also partly responsible for the ongoing war between Russia and Ukraine, escalating the cost of food and gasoline. The Fed’s repeated revision of the interest rate has caused the housing and stock cut.
The job market, which is still tight, will exert upward pressure on the wage costs. Inflation anticipations are moving higher even after a year of escalating price hikes. This might cause the workers to ask for a higher payout in the future and compel companies to go through more price hikes for compensation for escalating payroll prices, leading to spiraling wage prices like the 1970s.
Policymakers have signaled that it is best to keep tightening until they get results, with the Chair of the Fed announcing that they are willing to move up rates to the levels that cause restriction in growth. Likely, more whiplash lies ahead. Jerome Powell stated that the Federal Reserve would require agile with incoming data.
