Recession in U. S. possible despite good macro data-PIMCO
2023.02.08 13:51
Recession in U. S. possible despite good macro data-PIMCO
By Kristina Sobol
Budrigannews.com – Despite recent data indicating economic resilience, bond manager Pacific Investment Management Company (PIMCO) is sticking to its previous prediction that the U.S. economy is heading toward a recession.
The fact that the unemployment rate fell to a 53-1/2-year low of 3.4% in January, as reported in an employment report last week, points to a tight labor market that could be problematic for the Federal Reserve in its fight against inflation.
According to PIMCO North American economist Tiffany Wilding, the robust economic data suggest a recession may occur later than anticipated, but it is still likely.
In a note, she stated, “Recent net data haven’t caused us to change our outlook for a mild U.S. recession – we’re only pushing the timing back a little bit.”
PIMCO, which oversees assets worth $1.7 trillion, announced last month that it would focus on high-quality bonds this year due to their higher returns and protection in the event of a deeper than anticipated economic downturn in the global economy.
Some investors are of the opinion that indications of strength in the labor market reduce the likelihood of a recession and increase the likelihood of a “soft landing,” in which the Federal Reserve manages inflation without triggering a recession. (NYSE:) Goldman Sachs reduces its previous prediction of a 35% likelihood of the United States entering a recession to 25% in the coming year.
Markets have risen in recent months as a result of lower inflation. The benchmark for borrowing costs on assets ranging from mortgages to corporate loans, U.S. Treasury yields, decreased by approximately 30 basis points in January.
However, as the jobs data raised the possibility of further Fed interest rate increases, that rally faltered last week.
“Financial conditions are still tight by historical standards,” Wilding stated. “Although market-based measures of financial conditions have eased somewhat recently,” he added.
We believe that the actual tightening pressure that the overnight rate puts on the economy is underappreciated.
