Economics experts are speculating a possible recession that could hit the world economy in 2019
The US Federal Reserve decided on Wednesday to raise interest rates by a quarter percentage point to a level of 1.75 percent to 2 percent, expecting to raise interest rates four times this year, compared with expectations of a three-fold increase last March.
The bank raised interest rates in March, the sixth since December 2015, while trying to keep the economy growing at a sustainable pace without increasing inflation.
By increasing the one-night lending rate, the Federal reserve has given up its pledge to keep it for «some time» on interest rates at levels low enough to stimulate an economy, according to the federal reserve statement.
The federal reserve said that the «inflation would be allowed above target levels at least until 2020».
The central bank says the unemployment rate will fall to 3.6 percent and that the long-term sustainable unemployment rate is 4.5 percent.
However, the US «Bloomberg» agency says that there are two problems related to these calculations, which could lead to a recession in the United States by the end of 2019.
Since the long-term sustainable unemployment rate of the Federal reserve is 4.5 percent, and we will see a situation that cannot be sustained without a simultaneous rise in inflation.
To prevent a sharp rise in prices and curb inflation, the Federal Reserve needed more tightening to prevent a sharp contraction of the economy later.
First, there is no accurate way to measure the level of sustainable unemployment, with long-term estimates ranging from 4.5 to 6 percent, and may not take into account technological changes that lead to improved productivity, according to the Economist.
Workers, and managed to maintain low unemployment over time without accelerating inflation.
If the Federal Reserve raises interest rates excessively without an appropriate measure of stagnation in the labor market, the result would be to reduce aggregate demand and push the economy into recession.
The second problem is the decline in employment over the past two months, with the labor force participation rate falling between 25 and 54 years — the main age group of working age unaffected by the aging of the US population.
The rate fell from 82.2 percent in March to 82 percent in April and to 81.9 percent in May.
All these figures are far below the levels of participation for this age group before the Great Depression.
If the decline in participation rate is not, unemployment will remain below 4 percent and interest rates without confirming the state of the labor market call for a problem.
Federal Reserve requirements to maintain stable inflation.
The US Treasury market expressed doubts about the Fed’s decision as the yield gap between 2 and 10 years fell to a new low of 39 basis points on Wednesday.
The most recent emergence of this difference on August 29, 2007, a few months before the recession began, is no doubt that the two-year bond yield on equity is closely linked to the federal funds rate and the Fed’s threat to increase interest rates two more times this year will reflect the yield curve Over the coming months.
Mr. Jeffrey Gundlach chief executive officer of Doubleline Capital, said: «The US interest rates are rising with a high deficit as a „suicide mission“.
At the same time, the Tax Reform Act and the increase in federal spending have contributed to the worsening of the US deficit, to 125 per cent of GDP in 2030, according to the Double Line vision based on the expectations of the Congressional Budget Office.
