Economist says recent economic data has been the Fed’s ‘worst nightmare’

The economy looks pretty awful, and that won’t make the Fed’s job any easier as it tries to engineer a soft economic downturn, warns a senior Wall Street economist.

“I would say that recent economic data has been the worst nightmare for central banks,” Citi Global chief economist Nathan Sheets said on Yahoo Finance Live (video above). “On the one hand, I would say there is very clear evidence of slowing global demand. On the other hand, there is also clear evidence of persistent inflation pressures. If you put that together, it is really hard for the banks to fight that.”

The readings on the economy have collectively painted a picture of a slowing US economy stuck to stubbornly high inflation.

The sun rises over New York City during the June 10, 2021 solar eclipse as seen from the rooftop of The Edge Observatory in The Hudson Yards. (Photo by Noam Galai/Getty Images)

The Bureau of Economic Analysis (BEA) said last week that second-quarter gross domestic product fell 0.9% as consumers and businesses held back on their spending due to higher prices for goods and services. This marks the second consecutive quarter of economic contraction after the first quarter’s GDP decline of 1.6%.

Successive economic downturns fueled talk that the United States was in a recession.

“I wouldn’t be surprised if they did [NBER] “We pushed the start of the recession to the end of last year,” Dreyfus Mellon chief economist Vincent Reinhart said on Yahoo Finance Live. “So we may end up being one of the longest downturns on record.”

Over the past month, investors have also received heavy profit warnings from popular retailers such as Target, Walmart and Best Buy as consumers grapple with rising gas, food and rental prices. These warnings about material profits are an unwelcome sign about consumer spending decisions.

Bottom line: The Conference Board’s gauge of consumer confidence has fallen for three straight months, stocks remain in bear markets, and giants from Tesla to Meta to Amazon are announcing hiring withdrawals.

On top of that, the June CPI saw its biggest gain since November 1982 at 9.1%.

Despite the economic slowdown, the Federal Reserve made it clear at its last meeting that it would go ahead with raising interest rates this year to fend off inflation. That in turn could lead us to a situation where the unemployment rate is rising while the economy is slowing but inflation also remains high for a while, Sheets added.

“We feel right now that we are going through a period of temporary stagflation,” Sheets said.

Brian Suzy It is a comprehensive editor and Announcer at Yahoo Finance. Follow Suzy on Twitter Tweet embed and on LinkedIn.

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