Fed says US will have mild recession, Fitch sends negative signal to Washington

On May 24, the US Federal Reserve (Fed) released the minutes of its regular Federal Open Market Committee (FOMC) meeting in May 2023, which mentioned the possibility of a mild recession in the US economy.

Fed dự đoán Mỹ sẽ đối mặt với một cuộc suy thoái nhẹ

The 'ghost' of debt default is present, the US economy may face a 'great flood'. (Source: Sohu)

According to the minutes of the meeting, Fed economists assessed that tight financial conditions “will lead to a mild recession, beginning later this year, followed by a moderate recovery.”

Real gross domestic product (GDP) is expected to decline moderately in the next two quarters, with the rate of decline slowing in the fourth quarter of 2023 and the first quarter of 2024, the minutes said.

At its May 2023 meeting, all 11 members of the FOMC voted in favor of raising interest rates for the 10th consecutive time, in an attempt to curb the upward momentum of interest rates. However, leaders still had some disagreements about what to do next.

The minutes showed that some FOMC members believed that further policy action was needed to bring inflation back to the 2% target.

Another member noted that the world's largest economy is growing in the right direction, so additional tightening of monetary policies is not necessary.

The views highlighted in the minutes are consistent with public statements made by FOMC members in recent weeks.

Typically, on May 19, Fed Chairman Jerome Powell commented that interest rates may have increased far enough to achieve the goal of curbing inflation.

Dallas Fed President Lorie Logan commented at another event that interest rates should continue to be raised at the FOMC meeting in June 2023.

* Also on May 24, credit rating agency Fitch put the US on watch for a possible downgrade due to the risk of default as the government remains deadlocked in resolving the debt ceiling issue.

Specifically, the above agency assessed and ranked the US long-term issuer credit rating (IDR) at AAA in the Negative Credit Monitoring List.

Fitch said the AAA rating reflects growing partisan divisions that are preventing a consensus from being reached to raise the debt ceiling before the upcoming deadline.

However, Fitch still hopes the parties can reach a consensus on this issue.

The US Treasury Department warned that it could run out of money to pay its bills by June 1, triggering a debt default with devastating economic consequences, if Congress does not act to raise the debt ceiling.

However, negotiations between Republicans and Democrats on raising the debt ceiling have not yielded results, as the two sides hold different views on the issue.

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