According to the August 2024 employment report in the US, the US label market was more sluggish than expected. Bond yields are indicating that traders are preparing for a recession. Even the Federal Reserve’s probability model is predicting a 61.8 percent chance of recession in the next 12 months, the highest since the 1980s.
Could we be in a situation like 2008 in 2025? Is the big balloon about to burst? Will we see another incident like the bankruptcy of the big banking group Lehman Brothers? What lessons can be learned from this recession that started in December 2007 and ended in 2009?
The condition of the American economy had worsened due to the loan
Due to easily available loans, America witnessed a housing boom in the early 2000s. Even people who were not able to repay loans started getting home loans. Due to the inflow of money in the system, inflation there increased to more than 5 percent for two consecutive months. The recent trend of inflation in America is even worse.
Average inflation was 6.3% in 2008, more than 8.73% in 2022
We know that the biggest bubble in the US economy was seen in the US housing market at the beginning of the 21st century. It started in 2004 and burst in 2007. What is the level of this bubble now?
Many believe that US tech stocks could be the next bubble. In the last decade, due to loans available at low interest rates, there has been a flood of tech startups in California’s innovation hub Silicon Valley. Due to this, many companies like Tesla, Uber, Airbnb have emerged and there is a fear that due to rising borrowing costs and challenges on the profit front, the existence of many such companies may be in danger. However, Sameer Bhandari, co-founder and CFO of hBits, believes that only a ‘healthy correction’ will be seen in tech stocks and low interest rates will help them.
What did the Federal Reserve do to deal with the crisis a decade and a half ago?
The Federal Reserve had increased the federal funds rate by 4.25 percent from June 2004 to June 2006. Interest rates were increased by 5.50 percent from April 2022 to July 2023. The Federal Reserve has increased interest rates more aggressively in a very short time. The housing bubble burst in 2007 due to the increase in interest rates. However, many market players expect a 0.50 percent cut in interest rates in the US after a few days. Interestingly, in 2007 too, the Federal Reserve started cutting interest rates for the first time after a long time on September 18.
