Reading the Fed’s latest announcement (July 27) on the latest increase in borrowing costs (by 75 basis points and for the fourth time in a row since March 2022) it is easy to understand that the monster of inflation is what scares more than anything else the largest economy on the planet.
Records of a slowing economy as well as evidence of declines in spending and output (and thus the prospect of a future recession) have not been able to shake its resolve to restore stability to prices that continue to rise at a rapid pace. .
Inflation in the US reached an unthinkable 9.1% in June fueled mainly by increases in house rents. After an entire year of high inflation, the social fear of consolidating this situation is already very great and such a thing would bring chain reactions and natural effects that would not be easy to control.
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The initial conclusion that inflation is the No. 1 threat to Fed economists is further strengthened by the announcement by the Bureau of Economic Analysis a day later (July 28) that annual US GDP contracted to -0.90% and despite forecasts that the estimate would be around +0.40%.
It is worth noting that a decrease for the second consecutive quarter gives an activation signal to the concept of technical recession.
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The (annualized) changes in US GDP since January 2021:
- 28/07/22: -0.9%
- 28/04/22: -1.4%
- 27/01/22: +6.9%
- 28/10/21: +2.0%
- 29/07/21: +6.5%
- 29/04/21: +6.4%
- 28/01/21: +4.0%
The evolution of lending rates from the FED:
- 27/07/22: +2.50%
- 15/06/22: +1.75%
- 04/05/22: +1.00%
- 16/03/22: +0.50%
- 26/01/22: +0.25%
- 15/12/21: +0.25%
- 03/11/21: +0.25%
- 22/09/21: +0.25%