According to estimates provided by Capital Economics, in 2023, the US stock market has surged. However, a recession is still hanging over the United States like the sword of Damocles.
Experts at Capital Economics expressed concerns about a possible recession in the country. They believe that the reason for the possible hard landing of the American economy is the tightening of financial market conditions, which has not been observed since the economic crisis of 2008.
The report by Capital Economics highlights that the US economy is still on the verge of a recession, despite a rise in some technology stocks and a greater likelihood of a soft landing.
Tight financial conditions in the US have developed after the Fed sharply raised the key interest rate. The regulator has been tightening its policy since 2022. Analysts suppose that the key rate is now at its highest level since 2001. The Financial Condition Index (FCI) confirms this fact. It shows that financial conditions in Europe, Australia, Canada, Japan, and the United States have almost reached the point from which an economic crisis begins. What is more, in most countries, economists have found signs of a downturn in the credit market.
Thus, in some countries, banks have cut back on lending and made it more difficult. At the same time, loans in the private sector were almost at zero. In addition, the growth of the money supply, which is an important indicator of an economic slowdown, has stopped, while interest rates on consumer loans exceeded 8%.
Nevertheless, the market reaction was quite restrained. Many investors admit the possibility of a soft landing for the US economy thanks to a stable labor market. In addition, the increase in the interest rate will have a delayed influence on the economy, analysts believe.
