The economic growth tracking model shows that the US economy may have fallen into recession

According to the report on the website of consumer news and business channel on July 1, the gross domestic product tracking model of the Federal Reserve Bank of Atlanta shows that the U.S. economy is likely to fall into recession.
According to the report, most Wall Street economists have always pointed out that the possibility of negative economic growth in the future has increased, but they believe that this will not happen until at least 2023.
However, according to the gdpnow model, which tracks economic data in real time and continues to make adjustments by the Federal Reserve Bank of Atlanta, economic output shrank by 2.1% in the second quarter of this year. In addition, the economy contracted by 1.6% in the first quarter, which is in line with the definition of a technical recession.
Nicholas colas, the co-founder of the US "data Trek" research company, sent a document saying: "the gdpnow model has performed well in the past. The closer it is to the release on July 28 (the preliminary estimate of the second quarter GDP), the more accurate it will be."
The estimated value given by the tracking model fell precipitously compared with the last estimated value. On June 27, it also predicted that the U.S. economy grew by 0.3% in the second quarter. Data released this week showed that consumer spending and inflation adjusted domestic investment were becoming weaker, which prompted the model to lower its estimates and put the economy in a negative growth range from April to June.
The report said that a major change in the second quarter was the rise in interest rates. In order to curb soaring inflation, the Federal Reserve has raised its benchmark interest rate by a total of 1.5 percentage points since March, and may further raise interest rates for the rest of this year and 2023.
Fed officials are optimistic that they can curb inflation without plunging the economy into recession. However, Federal Reserve Chairman Jerome Powell said earlier this week that curbing inflation is the most important task at present.
In a panel discussion organized by the European Union earlier this week, Powell was asked what he had to say to the American people about how long it would take for monetary policy to solve the soaring cost of living.
Powell said that he would tell the public: "we fully understand and realize the pain people are currently experiencing in dealing with high inflation. We have the tools to solve this problem and the determination to use these tools. We are committed to reducing the inflation rate to 2% and will succeed. This process is likely to bring some pain, but the most painful thing will be to fail to solve the problem of high inflation and let it continue."
Whether this situation will turn into recession is unknown. As the official identification agency of economic recession and expansion, the National Institute of economics pointed out that negative economic growth for two consecutive quarters is not a necessary condition for declaring the economy into recession. However, since World War II, the United States has never experienced a situation in which the economy shrank for several consecutive quarters without falling into recession.
Of course, this tracking model will fluctuate and sway with each data release. However, colas points out that as the quarters go by, the gdpnow model will become more accurate.
He said, "the long-term performance of this model is very excellent. Since the Federal Reserve Bank of Atlanta began to use this model in 2011, its average error is only -0.3 percentage points. From 2011 to 2019 (excluding the economic turmoil caused by the epidemic), its tracking error is zero on average."
CORAS further pointed out that due to the slowdown in economic growth prospects, US Treasury bond yields have fallen sharply in the past two weeks.
Corras also said, "the stock market has not been 'comforted' by the recent decline in yields, because it sees the problem reflected in the gdpnow data: the U.S. economy is cooling rapidly."