GDP fell at a 0.6% annualized rate in the second quarter, a final estimate from the Bureau of Economic Analysis showed Thursday morning.
The updated report, which showed the same GDP number for the second quarter as the previous estimate, confirmed the second straight quarter of declining inflation-adjusted GDP — a situation commonly used to define a recession. GDP tumbled at a 1.6% rate in the first quarter.
But gross domestic income, which is an alternative measure of economic growth (that theoretically should be in sync with GDP), increased by 0.1% in the second quarter.
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While the coronavirus pandemic was the biggest factor in GDP growth over the past couple of years, the bigger problem facing the economy now is inflation and the Federal Reserve’s plan to tamp it down by raising interest rates.
The Fed has been on a historic rate hiking kick. Last week, the central bank conducted a monster rate hike to the tune of three-quarters of a percentage point, or 75 basis points. It was the third such increase in just a matter of four months.
As inflation continues to appear more enmeshed in the economy than thought and the Fed keeps hiking rates, the odds of a recession have been on the rise. The stock market has shed a massive amount of value over the past two weeks as investors weigh the increasing likelihood of a broad-based economic slowdown.
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The Fed will meet in November to decide its next course of action regarding interest rates, although it is already predicting that GDP growth will be slower than expected in response to the stubbornly high inflation and subsequent aggressive monetary tightening.
At the last meeting, the Federal Open Market Committee members, who vote on interest rate targets, slashed the GDP growth forecast for this year from the June projection of 1.7% down to 0.2% and revised down their GDP predictions for next year and 2024.
