Is A Recession Coming In The U.S.? Here’s What Experts Say

Is A Recession Coming In The U.S

The risk of a recession is causing increasing alarm among Americans.

The Federal Reserve began hiking interest rates earlier this month in order to reduce inflationary pressures. According to The Associated Press, the United States’ gross domestic product declined by 1.5 percent in the first quarter of 2022, the first drop since the second quarter of 2020, despite individuals and corporations continuing to spend.

However, this does not necessarily imply that the United States is experiencing a downturn.

Four economics experts spoke about recession worries, the status of the US economy, and what we can do to prepare for what lies ahead.

What Is A Recession, Exactly?

Is A Recession Coming In The U.S

According to the International Monetary Fund, the textbook definition of a recession is a two-quarter fall in GDP (which measures the value of a country’s production of goods and services).

In the United States, a recession is defined as “a major fall in economic activity that is spread across the economy and lasts more than a few months,” according to the National Bureau of Economic Research.

Why Is There Concern About The Economy In The United States?

Rising gas prices as a result of Russian President Vladimir Putin‘s war in Ukraine, a scarcity of cheap housing and consumer products, and “apparently increasing inflation,” according to Miesha Williams, the program director for economics at Morehouse College.

“Individuals and households are indifferent between purchasing a dinner at home or at a restaurant because there is no cost savings between the two,” Williams explained.

According to the Associated Press, the Fed boosted interest rates by a half-percentage point earlier this month to combat inflation, the largest increase in 22 years.

Following the news, Federal Reserve Chair Jerome Powell stated that the Fed “anticipates that continued increases in the target rate for the federal funds rate will be appropriate.”

The Fed’s objectives, according to Powell, are to keep the economy near to full employment while also ensuring price stability.

“Inflation is still substantially above our longer-term target of 2%,” Powell remarked.

The majority of the fear, according to Josh Bivens, director of research at the Economic Policy Institute, stems from the “relative newness of the inflation we’ve witnessed over the past year.”

“The concern is that reining it in and returning it to more-normal levels may require a great deal of policy skill, and if policymakers fail to do so, a recession may result,” Bivens told HuffPost.

Minutes from the Federal Reserve’s Open Market Committee meeting earlier this month, where the 12 members decide on monetary policy, including interest rates, reveal the issues facing the US and other economies across the world.

The minutes stated that “participants assessed that developments associated with Russia’s invasion of Ukraine and the COVID-related lockdowns in China created heightened threats for both the United States and economies around the world.” “Several panelists discussed the difficulties posed by monetary policy in restoring price stability while preserving strong labor market conditions.”

“In view of the high level of uncertainty surrounding the economic outlook, participants believed that risk-management considerations will be crucial in long-term policy decisions.”

Any stance taken by the Fed will have ramifications for the US economy and the risk of a recession, according to Bivens.

“To put it another way, if we have a recession because the Fed raises interest rates too quickly and too high, that will be a clear error,” Bivens said.

It’s worth considering, according to Christelle Khalaf, associate director of the University of Wyoming’s Center for Business and Economic Analysis, that programs put in place to help families during the epidemic may not have been expected to induce inflation.

“While most economists agree that these policies were essential,” Khalaf said, “the actual scale of the needed intervention is a more contentious matter.” “The intervention in 2008 was insufficient. It might have been too huge in 2020.”

“Does the Fed know how to chill the economy without triggering a recession?” Maybe. This kind of ambiguity, on the other hand, can make firms, markets, and economists nervous,” Khalaf concluded.

The National Community Reinvestment Coalition’s chief of membership, policy, and equality, Dedrick AsanteMuhammad, said the ongoing pandemic adds to the uncertainty.

How Has The White House Handled Concerns About The Recession?

On Monday, Vice President Joe Biden told reporters that a recession was not inevitable.

“Imagine where we’d be with Putin’s tax and the Ukraine war if we hadn’t made so significant progress,” Biden added. “For the first time in 40 years, our GDP will expand faster than China’s.”

However, Biden acknowledged that the United States, like other countries, is facing significant challenges.

“We have challenges that the rest of the world has,” Biden continued, “but they are less consequential because of our own growth and strength.”

The director of the National Economic Council, Brian Deese, agreed with Biden, citing a solid job market and increased business investment. “There are always hazards,” he added.

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“Our economy is in the process of transitioning from the strongest recovery in modern American history to a period of more stable and resilient growth that benefits families,” Deese said on CNN’s “State of the Union” on Sunday. “There’s no denying that we’re facing major global difficulties right now, with inflation at the top of the list. And it’s wreaking havoc on families.”

Are We Already in a Recession?

Is A Recession Coming In The U.S

Despite the first-quarter GDP decrease, the economy is predicted to expand.

“Growth in the second quarter is expected to be in the 2-3 percent range, with robust job growth,” Bivens added.

It can be difficult to determine whether the country is entering a recession, according to Williams.

“Most economists will tell you that we usually don’t realize we’re in a recession until it’s too late,” Williams added. “If landlords recover losses from unpaid rents during the epidemic, and housing markets become unbearably inflated while adjusting to the current scramble for cheap dwellings, then consumer spending will take a ‘back seat.'”

This, combined with persistently high petrol and food prices, could mean that other consumer goods are no longer seen as necessary, according to Williams.

“In essence, because of current challenges, consumer spending, which multiplies across the economy as a source of revenue for companies and their workers, could stall,” Williams concluded. “However, we should be concerned if we and our friends are hesitant to purchase or are experiencing consumer concerns for four to five months in a row.”

AsanteMuhammad expressed concern about how the public might be affected.

“My fear is not so much about the United States entering a recession as it is about how much human suffering will accompany it,” Asante-Muhammad remarked.

In the first year of the epidemic, Asante-Muhammad explained, government measures to help household finances and health meant there was “minimal economic household distress” at the time.

“I am concerned that this form of help may not be available in the event of a future recession,” Asante-Muhammad stated, “thus households may suffer more in a milder 2022 recession than in the brief but spectacular 2020 COVID recession.”

What Can We Do To Prepare For A Potential Recession?

The best thing that households can do to prepare for a possible recession, according to Khalaf, is to save.

“Increasing savings now not only provides a buffer for consumers during times of recession, but it can also contribute to a reduction in demand, alleviating inflationary pressures,” Khalaf said.

Bivens also emphasized the significance of policy choices.

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People should “demand that officials — both the Fed and their congressional representatives — act fast if a recession occurs, delivering much-needed relief to households,” according to Bivens.

How Are Other Countries’ Economies Faring In Comparison To The United States?

During a panel discussion Monday at the Davos Economic Forum in Switzerland, Kristalina Georgieva, managing director of the International Monetary Fund, was asked if some G-7 economies are already in recession. She replied, “Not at this stage.”

“That doesn’t rule out the possibility,” Georgieva concluded. “In April, we reduced our growth predictions for 143 nations for this year. This is equivalent to 86 percent of world GDP.”

Factors contributing to this, according to Georgieva, include Russia’s war in Ukraine, the dollar’s rise, debt, and China’s slowdown due to COVID. “It’s going to be a terrible year,” she said for the rest of 2022.

According to Reuters, World Bank President David Malpass stated on Wednesday that high energy prices had already had a negative impact on Germany’s economy.

“When we look at world GDP, it’s difficult to see how we can avoid a recession right now,” Malpass said.

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