Atlanta Fed GDP tracker shows the U.S. economy is likely in a recession

Federal Reserve Chair Jerome Powell reacts as he testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on the “Semiannual Monetary Policy Report to the Congress”, on Capitol Hill in Washington, D.C., U.S., June 22, 2022. 

There is a chance that the U.S. economy has entered a recession.

Wall Street economists think there will be an increased chance of negative growth in the future, but they don't think it will happen until at least three years from now.

The Atlanta Fed sees second-quarter output contracting by 1%. The decline in the first quarter would fit the definition of a recession.

Nicholas Colas wrote "GDPNow has a strong track record, and the closer we get to July 28th's release, the more accurate it becomes."

The tracker's last estimate of growth was less than a month ago. The cut that put the April-through- June period into negative territory was caused by further weakness in consumer spending and inflation-adjusted domestic investment.

Interest rates have risen in the quarter. Since March, the Fed has jacked up its benchmark borrowing rate by 1.5 percentage points in an effort to control inflation.

Fed officials think they can tame inflation without the economy going into recession. The paramount job now is to get inflation down according to Chair Powell.

At a panel discussion presented by the European Union, Powell was asked how long it would take for monetary policy to tackle the rising cost of living.

He said he would tell the public that he was committed to getting inflation down to 2% and that they had the tools to do that. The process is likely to involve some pain, but it's worse if you don't address the high inflation.

It is not known if that becomes a recession. Two quarters of negative growth isn't necessary for a recession to be declared according to the National Bureau of Economic Research. Since World War II, the US has never contracted in consecutive quarters and not been in a recession.

The tracker can swing with each data release. The GDPNow model gets more accurate as the quarter goes on.

The model has a good track record. The model has an average error of -0.3 points since it was first run by the Atlanta Fed. The tracking error averaged zero over the course of the last five years.

The yield on the U.S. Treasury has fallen over the past two weeks.

The recent decline in yields is not comforting to the stock market because they see the same issue depicted in the GDPNow data as the US economy is cooling.