Recent economic data has been the Fed’s “worst nightmare,” economist says

Recent economic data has been the Fed's "worst nightmare," economist says

The economy looks pretty dire, and that won’t make the Federal Reserve’s job any easier as it tries to engineer a soft economic landing, a leading Wall Street economist warns.

“I would say the recent economic data has been central bankers’ worst nightmare,” Citi global chief economist Nathan Sheets told Yahoo Finance Live (video above). “On the one hand, I would say there’s very clear evidence of a slowdown in global demand. And on the other hand, there’s also clear evidence that inflationary pressures persist. If you put that, it’s very difficult for the central banks to fight it.”

Readings on the economy have collectively painted a picture of a slowing US economy stuck with stubbornly high inflation.

The sun rises over New York City during a solar eclipse on June 10, 2021 as seen from the deck of The Edge observatory at The Hudson Yards. (Photo by Noam Galai/Getty Images)

The Bureau of Economic Analysis (BEA) said last week that second-quarter GDP fell by 0.9% as consumers and businesses cut spending due to higher food prices goods and services. This marked the second consecutive quarter of economic contraction after first-quarter GDP fell 1.6%.

The back-to-back economic contraction fueled talk that the US was in recession.

“I wouldn’t be surprised if they [NBER] In fact, push the start of the recession to the end of last year,” Dreyfus Mellon chief economist Vincent Reinhart told Yahoo Finance Live. “So we could end up in one of the recessions longest on record.”

Over the past month, investors also received major profit warnings from major retailers such as Target, Walmart and Best Buy as consumers grappled with rising gas, food and rent prices. These warnings of material benefits are an unintended signal about consumers’ spending decisions.

Bottom line: The Conference Board’s measure of consumer confidence has fallen for three straight months, stocks remain bearish, and massive companies from Tesla to Meta and Amazon announce hiring cuts.

And finally, the consumer price index for June registered its biggest increase since November 1982, with 9.1%.

The story continues

Despite the economic slowdown, the Federal Reserve made it clear at its last meeting that it would move forward with more interest rate hikes this year to curb inflation. In turn, Sheets added, this could lead to a situation where unemployment rises while the economy slows, but inflation also stays high for a period.

“Right now it feels like we’re going through a period of transitory stagnation,” Sheets said.

Brian Sozzi is managing editor and anchor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi yen LinkedIn.

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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!