US enters recession territory with Q2 GDP falling 0.9%

The US has reported its second consecutive quarterly decline in gross domestic product growth.

US GDP shrinks by 0.9%

The US economy is in a technical recession.

According to data published by the US Bureau of Economic Analysis, annual economic growth in the second quarter of the country came in at -0.9%, falling short of economists’ expectations of a 0.5% increase. The result follows an unexpectedly large decline of 1.6% of gross domestic product in the first quarter of the year.

“The decline in real GDP reflected declines in investment in private inventories, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment, partially offset by increases in exports and personal consumption expenditures (PCE),” the report read.

The US economy is now technically in a recession, which outside the US is usually defined as two consecutive quarters of economic decline. The National Bureau of Economic Research, an academic institution that determines whether the United States has entered a recession based on a wide range of factors, is set to evaluate the data and the state of the economy in the following week. The US Treasury Secretary, Janet Yellen, will also hold a conference today.

The gloomy US GDP figures come after the Federal Reserve raised interest rates by another 75 basis points on Wednesday. After the latest increase, US interest rates are now between 2.25% and 2.5%, with the Fed reportedly planning to raise rates further to around 3.4% at the end of the year and 3.8% in 2023. The Fed’s primary mandate is to lower inflation to its intended target of 2%, down from today’s soaring inflation rate of 9.1%. However, the central bank’s efforts to bring inflation down from four-decade highs may come at a cost to consumption, employment and ultimately economic growth.

Market participants can interpret the latest US GDP numbers as either bullish or bearish, depending on whether they believe the data is priced in. While negative growth is certainly not a favorable economic climate for risk assets, it could prompt the Fed to switch to a more accommodative monetary policy sooner than expected. Since markets are generally forward-looking, they may begin to price this event months ahead, despite the current difficult economic conditions.

Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.