According to Michael Yoshikami, founder and CEO of Destination Wealth Management, the possibility of a U.S. recession in the near future might actually prevent a significant market downturn in the second half of 2023. This insight offers a glimmer of hope amidst the concerns surrounding the economic landscape.
In April, the U.S. witnessed a decrease in consumer price inflation, with a year-on-year rate of 4.9%. This marks the lowest annual pace since April 2021. This data, released by the Labor Department, was interpreted by the markets as a positive sign that the Federal Reserve’s efforts to control inflation are starting to yield results.
While the headline consumer price index had soared to over 9% in June 2022, it has since cooled down considerably. However, it still remains above the Federal Reserve’s target of 2%. In April, the core CPI, which excludes volatile food and energy prices, saw an annual rise of 5.5%. This increase reflects the resilience of the economy and the persistent tightness of the labor market.
The Federal Reserve has consistently emphasized its commitment to combating inflation. However, the minutes from the latest Federal Open Market Committee meeting revealed a division among officials regarding interest rates. Ultimately, they decided to implement another 25 basis point increase, bringing the target fed funds rate to a range of 5% to 5.25%.
Looking ahead, Chairman Jerome Powell suggested that a pause in the hiking cycle is likely at the FOMC’s June meeting. Nevertheless, some committee members still advocate for further rate hikes, while others anticipate that a slowdown in growth will eliminate the need for additional tightening measures. It is worth noting that the central bank has already raised rates 10 times, totaling 5 percentage points, since March 2022.
Overall, these developments highlight the delicate balancing act undertaken by the Federal Reserve as they navigate the complex economic landscape. As the markets await the outcome of future policy decisions, the potential impact of a U.S. recession on the market downturn in the latter half of 2023 remains an important factor to monitor closely.