- U.S. GDP declined by 0.9% in Q2 of 2022, marking the second straight quarter of negative growth
- The Federal Reserve hiked the federal-funds rate to a target range to 2.25% - 2.50%
- The Index of Consumer Sentiment published by the University of Michigan registered 51.5 in July, its second lowest reading on record
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U.S. GDP Contracts for Second Straight Quarter: The Bureau of Economic Analysis reported last week that U.S. gross domestic product ("GDP"), a measure of all goods and services produced, declined by a seasonally-adjusted annual rate of 0.9% in Q2 of 2022. After falling 1.6% in Q1, U.S. GDP has now contracted for two straight quarters, which meets the traditional definition of a recession. Key factors driving the Q2 drop included decreases in business inventories, residential investments, and government spending. The report also indicated that consumers' expenditures of goods declined at a 4.4% rate, though spending on services (e.g., foods services, accommodations, health care) rebounded at a 4.1% pace.
Fed Hikes Policy Rate by Another Three-Quarters of a Point: The Federal Reserve raised its benchmark short-term interest rate (the federal-funds rate) by three-quarters of a percentage point last week, lifting the target range for the policy rate to 2.25% - 2.50%. This marked the Fed's fourth rate increase, including the second straight 3/4-point hike, since March of this year as the central bank unwinds its post-pandemic easy-money policies to combat stubbornly high inflation. Fed Chairman Jerome Powell signaled that additional rate hikes are likely this year, but didn't offer specifics on the pace of such, noting that decisions going forward will depend on incoming data on inflation and the outlook for the economy.
Consumer Sentiment Remains near Historic Low in July: After plunging significantly over the prior two months, the Index of Consumer Sentiment published by the University of Michigan registered a 51.5 reading in July, little changed from its record low of 50 posted in June. The index is based on surveys of consumers regarding their outlook on the U.S. economy. The June report highlighted that inflation remains at the forefront of consumers' attention, as they expect costs to rise 5.2% over the next year. Moreover, according to the report, consumers' labor market expectations softened in July.