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The report came out just as the Federal Reserve made its largest hike in interest rates since 1994 in an attempt to cool down inflation. In February 2022, the same models used by Bloomberg downplayed the chance of a recession at the beginning of 2024, forecasting a nearly zero percent chance for such a decline. By March, the likelihood of a downturn had risen to an estimate of less than 20 percent.
Consumer sentiment is at its lowest level among records dating back to 1978, Bloomberg reported, and sentiment is more pessimistic than at any time since the Great Recession of 2007–2009.
The University of Michigan economic sentiment index fell to 50.2 in June, the worse since the poll was first taken, with inflation as the biggest motive for the negative outlook.
The Federal Reserve raised benchmark interest rates by 75 basis points on June 15, following previous increases of 50 basis points and 25 basis points. Fed Chairman Jerome Powell suggested that the central bank’s next rate hike will be 50 or 75 basis points but that another 75-basis-point increase after that would not be likely.
Powell said he believes that as of now, there is “no sign” of a major economic slowdown, with his fellow central bank policymakers largely in agreement with his assessment. Meanwhile, many investors are currently betting on a poor outlook in the next several months, with stocks and bonds plunging to a low.
The S&P 500 is down about 20 percent from its January 2022 high, while the average mortgage rate has almost doubled to 6 percent, the highest rate since 2008.
Inflation Hitting ‘Main Street’
Many households are suffering from rising grocery, gas, and utility bills, with some dipping into their savings and retirement funds to make ends meet amid the highest rate of inflation in more than four decades. The Biden administration, which is taking criticism for its handling of the U.S. economy, is pointing to and echoing the Fed’s assessment.
“We have problems that the rest of the world has, but less consequential than the rest of the world has because of our internal growth and strength,” said President Joe Biden in Tokyo on May 23.
“This is going to be a haul. This is going to take some time,” he said.
Many Democrats fear a rout in the upcoming 2022 midterms, while Biden is facing a tough 2024 reelection bid if the economy continues at the current trajectory.
The administration is looking at various solutions, including a windfall tax on oil profits, a rapprochement with the Saudis for more oil, and a pledge to remove the Trump-era tariffs against China to lower import costs.
White House officials have repeatedly denied that rising inflation is a result of the administration’s policies and have at times blamed the Russians, the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus, the recent Chinese lockdowns, U.S. oil companies, and even former President Donald Trump for the financial woes facing Americans.
The administration has also stated that the economic models cited have projected widely varying results and that the health of the American economy is better than it appears to be.
Biden has touted the 3.6 percent unemployment rate as a success of his economic policies after two years of CCP virus-related lockdowns and government mandates, which put more than 20 million Americans out of work. However, the president’s June 2022 approval rating is at an all-time low of 38.9 percent, according to the same University of Michigan poll.
The White House is currently betting that there will still be time for an economic upswing after it hits a recession in early 2023, before the 2024 presidential election.
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