United States will most certainly experience a recession in the fourth quarter of this year or, at the latest, the first quarter of 2024, according to analyst David Benjamin of the investment firm Global X. In addition to concerns like ongoing inflation and dimming growth projections, Benjamin blames the economy’s response to rising interest rates for the projected slump.
Over the past 18 months, there has been a consistent increase in capital costs, with inflationary pressures and an overall economic outlook contributing to a slowdown in U.S. economic growth. Considering these factors, Benjamin expects a mild recession to occur in the U.S. economy during the specified time frame.
Although the Federal Reserve paused its cycle of interest rate hikes in June after implementing ten consecutive increases, it has indicated that a limited number of further rate hikes are still expected to reach a final target level. This ongoing tightening of monetary policy is anticipated to exert continued pressure on the American economy. Despite the predicted recession, Certain sectors such as artificial intelligence, infrastructure, and reshoring (the return of business to the U.S.) may display resilience and strength, attracting significant investment.
Turning to the European market, Benjamin points out that the Bank of England recently surprised observers by raising interest rates by 0.5%, higher than the expected quarter-percent increase. The central bank justified its decision by citing the need for additional time to address stubborn inflation. The British economy not only contends with elevated inflation but also grapples with labor shortages and the risk of salary turnover.
Benjamin identifies Brexit as the root cause of these challenges, preceding the Ukrainian conflict and the coronavirus pandemic. The withdrawal of Great Britain from the European Union has resulted in a scarcity of inexpensive labor, contributing to inflationary pressures. It is projected that the interest rate in the UK will reach 6.25% by the end of the year, indicating an anticipated further increase of 1.25%.
Highlighting a Key forthcoming release, Benjamin mentions the consumer price index (PCE), a vital gauge used by the Federal Reserve to assess inflation. Forecasts suggest that the index, to be published on Friday, will indicate a 0.13% increase in May, while the core index is expected to show a higher rise of 0.38%. In April, the annualized main index stood at 4.4%, with the core index at 4.7%.
Benjamin’s analysis suggests that the U.S. is poised to enter a recession in either the fourth quarter of this year or the first half of 2024, primarily driven by the impact of high-interest rates on the real economy. Conversely, the Bank of England’s recent interest rate hike reflects its efforts to tackle persistent inflation amid labor shortages and salary turnover risks in the U.K.
In conclusion, it is expected that the United States, will be the first country to enter into a recession, but it is also anticipated to be the first to recover from it.
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