Is the United States Heading For a Recession?

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The most recent Economist/YouGov poll discovered that three out of five Americans believe the US is in a recession. Then, why is it not officially recognized?

Many people’s spirits are low as a result of the skyrocketing inflation rate—the highest since the 1980s. As a result, some Americans cut back on their driving, avoid buying expensive organic food, and shop around to save money.

More awful news has come out. First, the once-burgeoning house market is weakening, which makes the equity-locked-in property less certain. Additionally affected is the S&P 500. The index has lost 19% of its value for the year, wiping out trillions of dollars and causing everyone to start sweating, from new investors to those who will shortly enter retirement.

However, the official governing body in charge of announcing is silent on the matter, suggesting that this may be a recession in the mood.

Recession—what is it exactly?

The value of the goods and services produced by a nation’s population – its Gross Domestic Product (GDP) – rises in a developing economy, making its citizens slightly richer on average.

A recession is typically characterized as when this occurs for two consecutive quarters of three months. However, that value can occasionally decrease.

It typically indicates a weak economy and may lead to more immediate layoffs in business. 

The US GDP declined for two straight quarters, by 0.6% in the next quarter and 1.6% in the first quarter of 2022. That constitutes a recession in most nations, simply not in the US.

The Business Cycle Dating Committee, a little-known panel of eight economists chosen by the National Bureau of Economic Research, a nonprofit organization, issues the official recession declaration. The committee has avoided using the R-word thus far.

How does the US economy fare in the face of rising interest rates?

The US Federal Reserve, the central bank of the United States, is hiking interest rates to drive down prices. As a result, it is hoped that people will spend less and save more by making borrowing money more expensive.

It will take some time, but the drop in consumer demand will eventually drive down the sky-high costs for products and services. Despite recent drops in gas prices, the cost of living has continued to rise, which has put America’s central bank in a difficult position.

In an effort to hasten the price decrease, the Fed is anticipated to increase its benchmark short-term interest rate by 0.75% for the third meeting in a row. In the event of such a significant increase, its benchmark rate, which influences many consumer and corporate loans, would rise to a range of 3% to 3.25%, the highest level in 14 years.

Read Also: Drop in US inflation sees drop in petrol prices 

They run the risk of stifling economic development and escalating unemployment, which would feed present recession fears.

Is a soft landing necessary?

Many still think a “soft landing,” or a minor economic downturn as opposed to a full-blown recession, is conceivable despite the dismal predictions. You might observe slower development in such a situation, but not the turbulence brought on by a full-blown slump.

The robust job market in America fuels this optimism. August saw a 315,000 increase in new hires by employers. Governor of the US Federal Reserve, Christopher Waller, said that is rarely an indication of a faltering economy.

As long as it takes to reduce inflation, the Fed has stated that it won’t hesitate to maintain high-interest rates. The process is unlikely to go well because the US central bank is getting ready to demonstrate that it will not waiver in its commitment to lowering prices. It could cause the economy to enter a recession if interest rates are raised too much. Too little of an increase causes inflation to keep rising.

A gentle landing is quite difficult, as noted recently by Raphael Bostic, president of the Federal Reserve Bank of Atlanta, who acknowledged that it is a difficult high-wire performance to pull off.

Opinions expressed by San Francisco Post contributors are their own.

Anthony Carter

I’m Anthony and I finished my degree graduate studies on Public Administration and I spend most of my free time in contributing written works about community development, public administration and lifestyle.

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