The unknown future of the US economy, a soft decline is hardly to expect

The unknown future of the US economy, a soft decline is hardly to expect

The Federal Reserve has put off any drastic action against inflation for long enough. When the problem became impossible to ignore, the main solution was the regular raising of key lending rate to reduce overall demand in the economy. Ultimately, however, the results show no tangible progress in keeping inflation rates down.

On one hand, the tension in the market and fears of a recession have grown. A guaranteed increase in unemployment and a slowdown in investment in many economic sectors are predicted. The country's real estate market experienced uneven demand growth in the first half of 2022. It is connected to the desire of existing buyers to purchase houses while mortgage conditions are quite favourable. On the other hand, new buyers already refuse to enter the market, for the most part.

In the first months of this year, the state of Florida experienced very strong growth. The local market is quite overheated. It has its own range of potential problems, in addition to issues caused by inflation and the increasing key rate.

A large number of market players expected any changes in the Fed's policies to raise interest rates in this context, if not the abolition of these policies. However, Jerome Powell, Chair of the Board of Governors of the US Federal Reserve System, indicated that the organization will not only continue its work, but will also increase the pace of key rate hikes.

The next increase is expected in July and September 2022. However, Jerome Powell assured that further actions of the Federal Reserve would be more balanced. The pace of rate increase will be decided "from meeting to meeting" and based on specific statistics for the past period.

However, today, few people can anticipate a “soft landing” policy for the economy from the Central Bank. A “soft landing” is a form of monetary policy, when the country's Central Bank raises the key rate moderately and smoothly, to the point when this allows to reduce inflation to reasonable limits. The policy means stopping until the moment when the rate growth leads to a real economic recession.

With up-to-date market information in hand and a clearly defined course of Federal Reserve actions, many experts and market players no longer expect the development in the indicated positive way. A rather tough scenario is becoming more and more obvious.

Inflation has already reached 8.6%, a record level for the last 40 years. Goldman Sachs predicts a 30% chance of an economic recession over the next year and a 48% chance of an economic recession over the next two years. The expectation that the Central Bank would accelerate and tighten financial policies in relation to interest rates on loans led to a sharp drop in the stock market. The S&P 500 has already decreased by 20% from its peak in early 2022.

One of the criticisms of the Reserve System actions is that the organization is trying to pretend that nothing terrible is happening and is ignoring the fact that the fight against inflation with these methods cannot go unnoticed for the market, even if the economy can avoid a recession.

For the states’ real estate markets, all of these changes and outlooks ensure that their future will be significantly different from what they have been accustomed to in recent years, especially in the context of huge demand coupled with historically cheap loans.

Even such "overheated" markets as Florida will face a sharp decline in consumer demand and sales volumes in the upcoming months. It will lead to lower prices, including a balance of supply and demand.

In addition to unattractive housing purchases, growing unemployment will also play a role in the narrowing of the consumer base in the country. Besides, those buyers and investors who remain in the market are likely to shift their interests to the rental sector, rather than buying and selling properties.

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