Think the US is out of the woods now that congress has come to an agreement on the debt ceiling? Not according to this chart from Rich Yamarone, an economist at Bloomberg. It’s called the “2 percent rule”. When US GDP falls below 2%, it usually means the world’s largest economy is headed for a recession.
Last week, we received confirmation that US GDP was just 1.6% in Q2 2011. Combined with yesterday’s much weaker than expected ISM report and an unemployment rate at 9.2% , it suggests that the US Federal Reserve won’t be in any rush to hike interest rates this year. Fed Governor Ben Bernanke may even be warming up the printing press (as Mike alluded to here) if US employment and growth outcomes don’t start to improve – and quickly.