Applicants introduce themselves at a job fair at the Ocean Casino Resort in Atlantic City, New Jersey, United States (stock image from April 2022). Associated Press
The Federal Reserve (US Federal Reserve) announced last week that it no longer expects a recession in the United States.
However, according to Joe Davis, Vanguard’s lead economist, unemployment will rise to over four percent next year.
“In terms of that, it’s actually a recession because the job losses are very modest,” he said.
This is a machine translation of an article by our US colleagues at Insider. It was automatically translated and checked by a real editor. We welcome feedback at the end of the article.
People in the US are likely to start losing their jobs soon – and that will likely prevent the Federal Reserve from realizing its dream scenario of a zero recession. That predicts Joe Davis, the top economist at the US financial services provider Vanguard.
Most banks expect rates to rise above 4 percent over the next 12 months as the central bank’s aggressive rate hikes feed through to the labor market.
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Davis said in “Bloomberg“-Podcast „What Goes Up“while these job losses will stifle wage growth and help bring inflation down to the Fed’s target level of 2 percent, they will also dashed the Fed’s hopes of a so-called “soft landing” — if rising ones do Prices are cooling but there is no recession in the US.
“It will take some weakness in the labor market to take the final step from trend inflation from 3% to 2%,” said the asset manager’s chief economist and head of investment strategy.
“Almost everyone is expecting the unemployment rate to rise by at least 30 or 40 basis points, so that’s going to be over 4 percent next year,” Davis added deep but a recession.”
The Vanguard forecaster’s warning comes after the Fed itself said it no longer expects a US recession this year. “Semantically, while they’re saying there’s no recession,” Davis told Bloomberg, “it’s actually a recession in terms of unemployment because the job losses are very modest.”
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The central bank has hiked interest rates from near zero to over 5 percent since March 2022 in a bid to tame rising prices, but pledged last week to take a data-driven approach to tightening.
Since then, inflation has fallen to just 3 percent from a four-year high, while both jobs and US gross domestic product have continued to grow despite soaring borrowing costs.
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