Amazon founder Jeff Bezos warned on Tuesday that the economy is headed for choppy waters.
The United States economy has met the rule-of-thumb definition of a recession, two consecutive quarters of negative growth, as the economy contracted at a 1.6% annualized rate in the first quarter and a 0.6% pace in the second quarter. Inflation has remained near four-decade highs, prompting the Federal Reserve to hike interest rate targets.
While responding to a video of Goldman Sachs CEO David Solomon cautioning investors to expect “more volatility on the horizon,” Bezos affirmed on social media that “the probabilities in this economy tell you to batten down the hatches.”
The world’s third-richest man is the latest among several business magnates to predict economic calamity. JPMorgan Chase CEO Jamie Dimon said in June that no one knows whether the forthcoming market “hurricane” is “a minor one or Superstorm Sandy,” while Tesla CEO Elon Musk told managers at the automotive company to “pause all hiring worldwide” because of his “super bad feeling” about the economy.
Amid persistent supply chain bottlenecks, labor shortages, and the Russian invasion of Ukraine, all of which have contributed to worsening inflationary pressures, officials at the Federal Reserve increased rate targets by 0.75% last month to address rising price levels in a move that followed identical hikes in June and July. A contractionary monetary regime from the central bank dampens prices by increasing the cost of borrowing money.
“The moderation in demand due to monetary policy tightening is only partly realized so far,” Federal Reserve Vice Chair Lael Brainard commented last week. “The transmission of tighter policy is most evident in highly interest-sensitive sectors like housing, where mortgage rates have more than doubled year to date and house price appreciation has fallen sharply over recent months and is on track to soon be flat.”
Uncertainty in the housing market has indeed diminished confidence among homebuilders and prospective buyers. The 30-year fixed mortgage rate remained below 3% for much of the past two years, according to data from government-backed mortgage company Freddie Mac. Since the beginning of the year, however, the rate has surged from just over 3% and reached 6.9% as of last week, marking a jump of nearly 1% in less than one month.
High energy prices, which have driven a large portion of rising price levels over the past two years, likewise continue to loom over the economy. As winter power bills are projected to soar, President Joe Biden announced on Tuesday that his administration would release 15 million barrels from the Strategic Petroleum Reserve by the end of the year, a move that will increase the supply of oil and thereby reduce gas prices, which have increased nearly 62% since Biden assumed office at the beginning of last year.
The economy and inflation are key issues among voters preparing to cast ballots in the midterm elections, with 84% considering the former to be a top factor on their minds. The Republican Party leads the Democratic Party by a 16% margin and a 19% margin with respect to trust in handling the economy and inflation, respectively, according to a poll from ABC News and The Washington Post.