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Peter Davis

An writer at FOMOdrive

  • Jun 30, 2023
  • 2 min read

Yellen dismisses record recession risks in the US

man holding his head terrified by the financial crisis

The likelihood of a recession occurring in the United States in the upcoming year has reached an all-time high of 44%.

Yelen, the US Treasury Secretary, has a different opinion.

Investors are predicting an economic downturn in the US and are consequently moving their investments from stocks to bonds.

A record 44% of economists polled by The Wall Street Journal (WSJ) have estimated the probability of a recession in the United States in the upcoming year. This is the highest level of recession risk expressed since 2007, just before the financial crisis.

In April's WSJ survey, experts estimated the likelihood of an economic downturn to be 28%, while in January it was estimated to be 18%.

The experts suggested that the rise in risks was caused by higher borrowing costs, inflation that is rapidly increasing, supply chain issues, and commodity price shocks due to the conflict in Ukraine. Furthermore, they argued that raising the key rate would not be effective in decreasing inflation without leading to a rise in unemployment.

Janet Yellen, the US Treasury Secretary, has expressed a different opinion than economists, highlighting the steadiness of the labor market and lower inflation. She believes that the chance of a recession in the US has decreased.

The minister explained that, despite this, recession risks remain as the Federal Reserve tightens policy. To bring inflation under control, they likely need to see a decrease in spending.

After the US employment report was published, Yellen assessed the situation. The report showed that in May, the number of jobs increased more than anticipated. Bloomberg reported that home construction and retail sales in the same month were surprisingly strong despite the Fed's strong monetary policy.

The Financial Times reports that, despite the stock market's growth, investors in the Treasury market are predicting that a Fed rate hike will cause a recession in the US economy.

The yield curve for US government bonds has inverted to its greatest extent in three months, nearing the 42-year high set during the banking crisis in March. This phenomenon, known as yield curve inversion, has been seen before every recession in the last 50 years. Short-term bonds have outperformed their long-term equivalents.

Bloomberg reports that global stocks have experienced their largest weekly decline in over three months. As investors anticipate higher interest rates and worry that expansive central bank policies may lead to an economic downturn, they have shifted from buying equities to purchasing safer bonds.

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