The contraction in consumer spending comes as the Federal Reserve raised interest rates by the most in 28 years on Wednesday, raising forecasts of a U.S. recession.
Wells Fargo now sees a “mild recession” in the U.S. economy starting in mid-2023 as inflation becomes more entrenched, eroding consumer purchasing power, and the Fed takes a more aggressive approach to fighting it. recession).
Moody’s Analytics also sees a low chance of a soft landing for the U.S. economy.
“The Fed will keep raising rates until it beats inflation, but that also risks damaging the economy,” said Ryan Sweet, director of monetary policy research at Moody’s Analytics. He said economic growth is slowing, but financial conditions are tightening and central bank cancellations Monetary stimulus has so far not had an impact on the economy.
Just before the Fed’s rate decision, U.S. retail sales unexpectedly fell 0.3 percent last month, the first contraction this year, underscoring the fact that higher prices are hitting consumer spending.
Guggenheim chief investment officer Scott Minerd believes the U.S. economy may already be in a recession given weak consumer spending. Recently, more and more economists believe that a recession is inevitable next year.
Wells Fargo economist Jay Bryson reported Wednesday that a week ago he believed the U.S. economy had a chance for a soft landing, but now the most likely scenario is a mild recession.
In addition, the U.S. unemployment rate remains historically low even as the number of initial jobless claims jumped to a five-month high last week, and Wells Fargo said the strong employment performance should further support consumer spending and prevent the economy from shrinking too much.
Analysts are now projecting a fairly close to 75% chance of a U.S. recession in early 2024.
