An oft-overlooked economic gauge indicated on Friday that the U.S. economy is heading into a recession — or already in one — as the Federal Reserve attempts to rein in inflation with a series of rapid interest rate hikes.
The Conference Board’s index of leading economic indicators showed that conditions deteriorated further in October, with the indicator down 0.8% from the previous month. This follows a 0.5% drop in September.
“The US LEI fell for an eighth consecutive month, suggesting the economy may be in recession,” said Ataman Ozyildirim, senior director of economic research at The Conference Board.
The crisis reflects a deteriorating outlook for consumers, who are increasingly worried about higher interest rates and stubbornly high inflation, as well as a protracted slump in the housing market.
DEMOCRATS SLAM ‘DANGEROUS’ FEDERATION RATE HIKES, WARNING OF WIDESPREAD JOB LOSS
There is growing expectation on Wall Street that the The Fed will trigger an economic slowdown as it raises interest rates at the fastest rate in three decades to catch up with runaway inflation.
This month, authorities approved a fourth consecutive rate hike of 75 basis points, taking the federal funds rate to a range of 3.75% to 4% – levels close to the restriction – and did not showed no signs of halting rate hikes.
In a troubling development, the Fed’s rate hikes have so far failed to keep inflation in check: the government announced this month that the consumer price index had climbed 7.7 % in October from a year earlier, near a 40-year high.
FED RAISES INTEREST RATES TO 75 BASIS POINTS FOR FOURTH CONSECUTIVE MONTH
This indicates that the Fed will need to continue to chart its aggressive course, increasing the odds that it will crush consumer demand and drive up unemployment.
“Let me say this,” Fed Chairman Jerome Powell told reporters earlier this month. “It’s very premature to think about pausing. When people hear lags, they think about pauses. It’s very premature, in my view, to talk about pausing our rate hikes. We have a ways to go.”
Rising interest rates tend to create higher rates on consumer and business loans, which slow down the economy forcing employers to cut costs.
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Economic growth has already contracted in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a country – contracting 1.6% in winter and 0.6% in spring.
However, it rebounded over the summer, with GDP growing at an annualized 2.6% over the three-month period from July to September.