An often-overlooked economic gauge indicated Friday that the U.S. economy is headed for a recession — or already in one — as the Federal Reserve tries to curb inflation with a series of rapid rate hikes.
The Conference Board’s Leading Economic Indicators index showed conditions further worsening in October, with the gauge down 0.8% from the previous month. This is followed by a decrease of 0.5% in September.
“The US LEI fell for the eighth consecutive month, suggesting the economy may be in recession,”[ads1]; said Ataman Ozyildirim, senior director of economic research at The Conference Board.
The decline reflects poorer prospects among consumers, who are increasingly worried about steeper interest rates and stubbornly high inflation, as well as a prolonged downturn in the housing market.
DEMOCRATS SLIM ‘DANGEROUS’ FED RATE HIKS, WARNING OF WIDESPREAD JOB LOSSES
There is a growing expectation on Wall Street that The Fed will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with ongoing inflation.
Officials this month approved a fourth consecutive rate hike of 75 basis points, lifting the federal funds rate to a range of 3.75% to 4% – close to restrictive levels – and showed no signs of halting rate hikes.
In a troubling development, the Fed’s rate hikes have so far failed to tame inflation: The government reported this month that the consumer price index rose 7.7% in October from a year earlier, hovering near a 40-year high.
FED RAISES INTEREST RATES BY 75 BASIS POINTS FOR FOURTH STRAIGHT MONTH
It indicates that the Fed will need to continue to chart its aggressive course, increasing the chances that it will crush consumer demand and cause unemployment to rise.
“Let me say this,” Fed Chairman Jerome Powell told reporters earlier this month. “It’s very premature to think about a pause. When people hear delays, they think about pauses. In my view, it’s very premature to talk about pausing our rate hikes. We have a way to go.”
Higher interest rates tend to create higher prices for consumer and business loans, which slows down the economy by forcing employers to cut costs.
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Economic growth already slowed in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a nation – falling by 1.6% in the winter and 0.6% in the spring.
However, it rebounded over the summer, with GDP growing by 2.6% year-on-year in the three-month period from July to September.