"US Economy Defies Doubtful Recession Fears as GDP and Jobs Data Exceed Expectations"

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The latest data on the US economy has alleviated concerns of a looming recession, as GDP and jobs figures exceeded expectations. Despite initial concerns about inflation, the revised first-quarter economic data demonstrated stronger growth than initially projected. Moreover, revisions to jobless claims, attributed in part to fraudulent data in Massachusetts, indicate that unemployment claims are not accumulating as previously anticipated. These positive data points contribute to a growing narrative that challenges the pessimistic outlook of some economists predicting a recession.

Rick Rieder, Blackrock's CIO of fixed income, expressed scepticism regarding the argument for an impending recession, emphasizing the uncertainty surrounding whether inflation will decrease sufficiently to meet the target. These sentiments are echoed by recent developments in consumer spending, suggesting that spending power is not declining rapidly. Best Buy anticipates improved consumer technology demand in the second half of the year, while speciality clothing retailers Urban Outfitters and Abercrombie & Fitch reported robust sales. Additionally, business-to-business spending remains steady, as demonstrated by the positive earnings forecasts of companies like Nvidia and Palo Alto Networks.

The overall spending landscape suggests the potential for another quarter of growth, as indicated by the Atlanta Fed's projection of 2.9% GDP growth for the second quarter. Citigroup's team of economists highlighted the likelihood of further interest rate hikes by the Federal Reserve to counterbalance stronger growth and inflation in the first quarter, aiming to bring inflation back to 2%.

Federal Reserve Chair Jerome Powell has maintained a cautious approach, leaving decisions to be made based on incoming data. However, other Fed officials, such as Federal Reserve Governor Christopher Waller, have expressed a readiness to raise interest rates if clear evidence of inflation moderating does not emerge. On the other hand, Federal Reserve Bank of Boston President Susan Collins struck a more cautious tone, indicating that monetary policy may soon pause raising interest rates if promising signs of inflation moderation persist.

Looking ahead to the upcoming jobs report, market expectations increasingly lean toward another rate hike in June. Initially, markets were confident of a pause following the May 10 CPI report, which revealed a cooling of inflation at its fastest rate in two years. However, with a resilient labour market and consumers continuing to spend despite inflation pressures, economists are questioning the previously anticipated trajectory.

While it is expected that the Federal Reserve will maintain rates at its June meeting, the recent minutes from the Federal Open Market Committee (FOMC) meeting suggest that significant improvements in labour market conditions would be necessary to permanently remove rate hikes from consideration. The totality of these factors has led the Oxford Economics team of economists to emphasize the need for ongoing monitoring of labour market conditions to assess the future direction of rate hikes.

inputs from/ Google,AI, yahoo