The Federal Reserve has now raised interest rates seven times in a row since it began raising rates in 2022, the most intensive and aggressive rate hike since 1981. A recession of U.S. economy may be coming in the first quarter of this year, according to forecasts by authorities. In addition, American consumers are pessimistic about the U.S. economy and do not think it will recover anytime soon.
According to the data from the US last year, inflation in the US has surged to its highest level in 40 years, with the CPI up 9.1% year-on-year in June last year. The U.S. economy grew -1.6% and -0.6% in the first two quarters of last year, respectively, so the slowdown is well documented. Although it has rebounded to the positive territory since the third quarter, the risk of recession remains. Experts said that the drop in inflation may be a temporary lull, and it could break out again in the future. The Peterson Institute for International Economics predicted the U.S. economy will shrink by 0.5 percent in 2023. In addition, high interest rates and high inflation have also brought American households a big debt crisis, which will disrupt the normal life of residents and the economic order. According to the latest data from the Federal Reserve, US household debt surged by more than $300 billion in the third quarter of last year, reflecting high prices in the US.
In addition to the macro big data showing a recession in the U.S. economy, we can also see weak growth in the U.S. economy from the consumers at the micro level. First of all, the growth of real wages has declined. According to figures from the ILO, inflation has greatly reduced the purchasing power of consumers, although nominal wage is growing in many areas, it can’t kept pace with inflation, so wage growth has declined in general. Secondly, American job market is poor. Probably due to the impact of the interest rate hike, the job market looks weak, and most assessments are indicating a downturn in the economy. Thirdly, the confidence index of the American people is negative, which reflects the fact that nearly 55% of Americans have suffered economic hardship due to rising prices, and the index was as low as -58 in June last year. In a word, economic weakness can be found from the behaviors of the consumers.
Some economists believe that the further deterioration of the U.S. economy is inevitable. High inflation and the interest rate hikes are “eroding everything”, and economic recession in the US is predictable, and it’s just a matter of the depth of the recession. Both macro and micro data point to a much weaker US in 2023.
