US slips into recession — what this means for crypto?
After the US economic output declined for the second straight quarter, the country is in a recession.
After the US economic output declined for the second time in a row, the country is in a recession.
The U.S. economy shrank for the second year in a row. This comes from new figures from the Bureau of Economic Analysis (BEA). After a 1.6% decline in Q1, GDP fell another 0.9% in Q2. By definition, the U.S. is therefore in a recession.
The BEA attributes the falling GDP to lower inventories and business investment. Additionally, lower government spending and fixed-asset investments in housing could have amplified the effect. On the other hand, exports and personal consumption expenditures rose, but they couldn’t offset the overall decline.
Is the Fed choking the economy?
Meanwhile, experts also point to the Federal Reserve's monetary policy as a reason for the slowdown. The U.S. central bank signaled rate hikes in several steps due to inflation. Recently, the Fed raised its benchmark rate by 0.75 percentage points. The range is now between 2.25% and 2.50%.
Earlier this week, President Joe Biden, ahead of the economic data release, tried to put the results in perspective. After the rate decision, Fed Chair Jerome Powell also downplayed recession fears. Referencing the strength of the labor market, he said the U.S. isn’t threatened by an economic downturn. At the same time, the 69-year-old projected a federal funds rate of up to 3.5% by year-end.
"Recession shock in the U.S. is a driver for crypto"
Meanwhile, the crypto market isn’t fazed by the U.S. economic slowdown. The total market cap of all cryptocurrencies rose 4% overnight to $1.14 trillion.
Bank of America, one of the largest banks in the U.S., had already flagged the looming "recession shock" as a driver for the crypto market in April. Michael Hartnett, Chief Investment Strategist, wrote in a client note that cash, volatility, commodities, and cryptocurrencies could outperform bonds and stocks.
