America

bullish

Jerome Powell

Reserve

The Federal Reserve’s decision to slash interest rates by 50 basis points yesterday has folks wondering whether it could lead to another recession. 
The last two times they cut rates by more than 50 basis points, the economy fell into recession a few months later. 
<h3 id="span-style-font-weight-400-history-is-not-on-the-fed-s-side-span">History is not on the Fed’s side</h3> 
The first time was on January 3, 2001. The result? Over the next 448 days, the S&amp;P 500 dropped nearly 39%, and unemployment jumped by 2.1%. 
The recession that followed was tied to the dot-com bubble bursting and was made worse by the September 11 attacks. 
Then, on September 18, 2007, they did it again. Another 50 basis points cut, and the S&amp;P 500 plunged by 54% in the following 372 days.&nbsp; 
<figure id="attachment_573050" aria-describedby="caption-attachment-573050" style="width: 100%" class="wp-caption alignnone">
 <img loading="lazy" decoding="async" class="wp-image-573050 size-full" src="https://www.cryptopolitan.com/wp-content/uploads/2024/08/Does-Bitcoin-even-care-about-Jerome-Powells-Jackson-Hole-speech.avif" alt="Federal Reserve Might've Set America on a Course to Recession" width="1280" height="853" srcset="https://www.cryptopolitan.com/wp-content/uploads/2024/08/Does-Bitcoin-even-care-about-Jerome-Powells-Jackson-Hole-speech.avif 1280w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Does-Bitcoin-even-care-about-Jerome-Powells-Jackson-Hole-speech-300x200.avif 300w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Does-Bitcoin-even-care-about-Jerome-Powells-Jackson-Hole-speech-1200x800.avif 1200w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Does-Bitcoin-even-care-about-Jerome-Powells-Jackson-Hole-speech-768x512.avif 768w" sizes="(max-width: 1280px) 100vw, 1280px">
 <figcaption id="caption-attachment-573050" class="wp-caption-text">
 Jerome Powell
 </figcaption>
</figure> 
Unemployment surged by 5.3%. The recession lasted until mid-2009, made worse by the housing market collapse and a global financial crisis. 
But here’s the thing. This time around, the signs are a little mixed. Inflation has eased, falling below 5% in August.&nbsp; 
The Fed’s target is 2%, and its policy committee believes they’re on the right track with the recent adjustments. But the labor market is in trouble.&nbsp;Unemployment has risen to 4.3% in August from 4.1% in June, the highest rate in three years. Despite it though, unemployment is still relatively low compared to past recessions. 
GDP growth in Q2 hit an annualized rate of 3.0%, a sharp increase from the modest 1.4% growth in Q1. But economists predict that it could slow to around 0.6% in Q3, as high prices and high interest rates put a squeeze on consumer spending.&nbsp; 
The Fed’s goal to achieve a soft landing might be harder than they think. Comparing the current economic indicators with those from 2001 and 2007 adds to the concerns.&nbsp; 
In September 2024, the Federal Funds Rate is between 4.75% and 5.00%. Before the 2001 recession, it was around 6.5%. Before 2007, it was about 5.25%. Unemployment now is at 4.3%. It was 4.0% before 2001 and 4.6% before 2007. 
<figure id="attachment_589824" aria-describedby="caption-attachment-589824" style="width: 100%" class="wp-caption alignnone">
 <img loading="lazy" decoding="async" class="wp-image-589824 size-full" src="https://www.cryptopolitan.com/wp-content/uploads/2024/09/Screenshot-2024-09-19-at-05.53.36.png" alt="Federal Reserve Might've Set America on a Course to Recession" width="1375" height="430" srcset="https://www.cryptopolitan.com/wp-content/uploads/2024/09/Screenshot-2024-09-19-at-05.53.36.png 1375w, https://www.cryptopolitan.com/wp-content/uploads/2024/09/Screenshot-2024-09-19-at-05.53.36-300x94.png 300w, https://www.cryptopolitan.com/wp-content/uploads/2024/09/Screenshot-2024-09-19-at-05.53.36-1200x375.png 1200w, https://www.cryptopolitan.com/wp-content/uploads/2024/09/Screenshot-2024-09-19-at-05.53.36-768x240.png 768w" sizes="(max-width: 1375px) 100vw, 1375px">
 <figcaption id="caption-attachment-589824" class="wp-caption-text">
 Credits: Cryptopolitan
 </figcaption>
</figure> 
Despite these parallels, some factors suggest a recession isn’t certain. The Fed argues that the risks are balanced. They see the labor market and inflation as stable, unlike the past when severe imbalances led to economic collapse. 
Still. History shows that rate cuts of this size have ALWAYS led to a recession. If the Fed manages to avoid one, it would be the first time ever. 
<h3 id="markets-show-initial-positivity-crypto-quite-not">Markets show initial positivity, crypto, quite not</h3> 
The stock market is often a leading indicator of the economy’s health. After the 2001 rate cut, the S&amp;P 500 fell nearly 40%. The Nasdaq lost about 80% of its value. The market panic was made worse by corporate scandals like Enron and the September 11 attacks. It took years for the market to recover. 
In the 2007-2009 recession, the S&amp;P 500 dropped around 57%. The financial crisis led to massive sell-offs, and major institutions needed government bailouts.&nbsp;Investor confidence was shattered. The recovery was slow and painful, with many stocks not regaining their pre-crisis levels for almost a decade. 
<figure id="attachment_566613" aria-describedby="caption-attachment-566613" style="width: 100%" class="wp-caption alignnone">
 <img loading="lazy" decoding="async" class="wp-image-566613 size-full" src="https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed.webp" alt="Federal Reserve Might've Set America on a Course to Recession" width="1920" height="1280" srcset="https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed.webp 1920w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed-300x200.webp 300w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed-1200x800.webp 1200w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed-768x512.webp 768w, https://www.cryptopolitan.com/wp-content/uploads/2024/08/Economists-expect-only-a-quarter-point-rate-cut-from-the-Fed-1536x1024.webp 1536w" sizes="(max-width: 1920px) 100vw, 1920px">
 <figcaption id="caption-attachment-566613" class="wp-caption-text">
 Headquarters of the Federal Reserve in Washington, D.C.
 </figcaption>
</figure> 
Yesterday, the market initially reacted positively to the <a href="https://www.federalreserve.gov/newsevents.htm" rel="nofollow noopener" target="_blank">cut</a>. But this optimism could be short-lived. 
Meanwhile, crypto markets did not react the way investors hoped. Ether couldn’t even make a break to $2,500 and Bitcoin only managed to hit $62k from $60k. Not quite the big bullish catalyst we were hoping for. 
So, what could happen now? Over the next 3 to 6 months, if unemployment keeps rising and consumer spending dips, a recession could start. 
If current trends persist, a gradual slowdown could lead to a recession in 6 to 12 months. 
On the other hand, if conditions stabilize, with consumer spending and inflation under control, the US economy might dodge a downturn.

Federal Reserve might’ve set America on a course to recession with the rate cut

Table of Contents

Cryptopolitan_News

Other articles published on Sep 19, 2024

ChainUp Celebrates 7 Years of Excellence: Uniting CeFi and DeFi Executives

$24.37 Million in ETH to Be Sold by ICO-Era Ethereum Whale

Coinpedia Fintech News

Shytoshi Kusama Again Mysteriously Appears in Public? His Tweet Suggests So

Binance Labs' New Investment: What is Hemi Network?

Vitalik Buterin Says Insurance DAOs Are the Future of Fair Insurance

Join our free newsletter for daily crypto updates!