For another quarter in succession the US economy has posted negative growth, with the contractions meeting official international criteria for a recession as the Federal Reserve pushes ahead with its attempts to cool growth and tamper down inflation.
With the Federal Reserve again deciding to raise rates by 75 base points in July, the writing now appears to be on the wall for the economy, with a 0.9% decline in output between April and June. An increase had been expected of around 0.5%. The 0.9% drop follows a first quarter contraction of 1.6%.
This year’s 1.6% and 0.9% decline compare less than favourably with last year’s figures for the same period, which saw a growth of 6.3% in Q1 and 6.7% in Q2.
Fears of a recession have been swirling on Wall Street for many months, with experts unconvinced by the Federal Reserve’s assertion that its rate hikes would result in a ‘soft landing’. US President Joe Biden has described the figures as to be expected saying, “It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation. We are on the right path and we will come through this transition stronger and more secure.”
News of the economic slowdown comes as Chairman Jerome Powell warns that September could see an even greater increase on the cards. On Wednesday, he said the Feds are considering instigating another “unusually large” rate hike in September.
BMO Capital Markets’ senior economist Sal Guatieri said the contraction may mean the Federal Reserve proceeds with more caution noting, “The economy is highly vulnerable to slipping into a recession. That might discourage the Fed from ramming through another large rate hike in September.”
So far, the rate hikes have had little impact on inflation, with headline inflation continuing to increase and push up prices for goods such as food and energy.
Chief market strategist George Milling-Stanley said this is good news for gold, noting “As people’s fear of recessions resurface and I’m sure it will on multiple occasions over the next two months, then I think that gold will do well as investors seek safe-haven assets. I expect that growth will continue to slow. The U.S. economy is going to get a lot worse before it gets better and that is positive for gold.”
Gold surged as a result of the GDP figures in trading yesterday (Thursday) gaining 2.07%. We know that during economic downturns gold tends to outperform, while its appeal as a safe haven and secure store of wealth shines even brighter. Now is the time to buy. Don’t delay.
