The Official Story About the Economy Doesn’t Add Up
It’s official: the economy isn’t going into recession.
That pronouncement comes straight from the same top Biden administration official who last year declared that inflation would be transitory.
On Sunday, Treasury Secretary Janet Yellen went on NBC’s “Meet the Press” and said, “This is not an economy that is in recession.”
Interpretations of what constitutes a recession differ among economists. Some point to negative Gross Domestic Product readings already in the books as confirmation a recession has started. Others merely see a slowdown.
But it doesn’t take an economist to see warning signs of recession abounding. Households see their costs of living rising much faster than their incomes. Businesses, in turn, see weakening sales numbers and tighter margins, pushing many to take drastic cost-cutting measures.
The Alignable small business network’s July hiring report showed that 45% of small businesses are halting new hiring.
According to the report, “This represents a significant hiring shift, and is largely a reaction to mounting labor costs, skyrocketing inflation, fears of a recession, and rising interest rates.”
Large publicly traded corporations are giving of recession warnings. The S&P 500 has fallen over 20% from its high – a classic bear market indicator and recession precursor.
Investors are worried the Federal Reserve’s rate hikes will kill the economy.
And historically, whenever the Fed has embarked on a rate-hiking campaign of this magnitude, it has caused the economy to roll over.
But to top federal officials, none of these signs of a recession are even visible?!
“You don’t see any of the signs,” Janet Yellen insisted during her Sunday media rounds. “A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that.”
Investors who don’t buy the official story on the economy should prepare accordingly. Whether it’s just a mild recession or a total economic collapse, a deteriorating economy will eventually force the Fed to change course on rate hikes.
Expectations for further tightening have helped push the U.S. Dollar Index higher and precious metals prices lower in recent weeks. However, these trends showed signs of reversing last week.
The Fed will surely hike rates again at is upcoming policy meeting on Wednesday. Markets have already priced that in.
What they haven’t priced in is the Fed pivoting away from inflation fighting and toward digging the economy out of a downturn.
Fed chairman Jerome Powell won’t make an announcement to that effect. But markets will interpret any subtle shifts in language toward dovishness to mean central bankers are, in fact, worried about a recession despite official denials.
Once speculation of a Fed pivot gets any confirmation, it could be curtains for U.S. dollar strength – and all clear for gold and silver markets to take off.