NEW YORK (Reuters) – The U.S. economy contracted again in the second quarter amid aggressive monetary policy tightening from the Federal Reserve to combat high inflation, which could fan financial market fears that the economy was already in recession.
Gross domestic product fell at a 0.9% annualized rate last quarter, the Commerce Department said in its advance estimate of GDP on Thursday. Economists polled by Reuters had forecast GDP rebounding at a 0.5% rate.
MARKET REACTION:
STOCKS: S&P 500 futures stayed softer and were down 0.11%, pointing to a weak open on Wall Street
BONDS: U.S. 10-year yields fell to 2.7303%; Two-year yields fell to 2.9027%;
FOREX: The dollar index pared a gain to 0.16%
COMMENTS:
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“These are disappointing numbers, obviously, and the first quarter was revised lower.”
“The market has been forecasting a recession. From a textbook viewpoint this is a recession and a mild one.”
“Will this change the course of the Fed? Probably not.”
“(The inventories drag) tells you that corporations are very concerned and are pulling back on their spending. That’s part of a recession atmosphere.”
“The bright spot is the core PCE price index, which dropped to 4.4%.”
HUSSAIN MEHDI, MACRO AND INVESTMENT STRATEGIST, HSBC ASSET MANAGEMENT, LONDON (email)
“Although the US economy has entered a technical recession this mainly reflects contributions from trade flows and inventory de-stocking. Underlying activity remains buoyed by a strong labor market and a rotation to services spending. Nevertheless, growth momentum is undoubtedly weakening amid headwinds such as rapid policy tightening, a significant squeeze in real incomes, and falling confidence. We see a bumpy road ahead as the Fed attempts to rebalance supply and demand in the economy and an elevated risk of recession in the second half of 2023 as rates push into restrictive territory.”
“In terms of markets, ongoing Fed tightening and a weakening macro backdrop is likely to constrain performance going into year-end. We remain selective and defensive in our asset class positioning. For us, a relative preference for US equities over other developed markets continues to make sense, with growth and tech stocks likely to be a major beneficiary of a less hawkish Fed policy stance as inflation cools.”
(Compiled by the Finance and Markets Breaking News team)
