Jobs, Banks, Earnings All Point to Recession. Cue Another Fed Rate Hike

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Jobs, Banks, Earnings All Point to Recession. Cue Another Fed Rate Hike
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More red lights are flashing across the U.S. economy. If recession fears were beaten back for a time earlier this year, this week they came front and center.

The Conference Board’s Leading Economic Index—which measures U.S. business cycles—dropped unexpectedly sharply to its lowest level since November 2020. It was its 12th consecutive monthly decline, the longest such run since the period from 2007-2009—not the most positive precedent.

For those who prefer more concrete measures look at the labor market, where the latest data show initial jobless claims rising again. It wasn’t a big increase but it’s a sign of what is likely to come. Meta CEO Mark Zuckerberg now says the social media company intends to scale back employee growth to just 1% to 2% a year. If tech’s most prolific hirer is signaling new applicants are less welcome, that’s a poor sign for future job seekers.

Earnings season isn’t exactly lifting the mood. Regional lenders’ results were mixed and bank borrowing from the Federal Reserve increased for the first time in five weeks. Even Elon Musk’s Tesla earnings call had a gloomy tone—and that was before his rocket blew up.

Traders have all but given up hope the Federal Reserve will ride to the rescue by pausing its rate-hiking cycle. In the last comments before their blackout period, Fed speakers this week only doubled down on the prospects for another increase—and the CME FedWatch Tool now shows a nearly 85% chance of a 25 basis-points hike at the May meeting.

Markets have been operating under the shadow of a recession for a long time and still managed to rise. But markets had also expected the Fed to start cutting this year. Now, knowing that the central bank is still working against them as the economy cools, sentiment could sour quickly.

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