- Michel Fleury
- North American Business Correspondent, New York
31 minutes ago
Three out of five Americans say the United States is in a recession, according to the latest survey conducted by The Economist and YouGov. So why isn’t it officially announced?
Rising inflation – the highest rate since the 1980s – has worsened the mood for many. Some Americans are becoming less reliant on their own cars to save on gasoline, ditching expensive organic products, and looking for deals to save a few dollars.
And there’s more bad news, as the once-booming housing market is slowing, making real estate stocks risky. The Standard & Poor’s 500 Index (which includes shares of the 500 largest US financial companies) has also taken a hit, falling 19 percent for the year, causing investors to lose trillions of dollars.
But this may only be a dip in the mood, as the official body responsible for announcing such details remains silent on the issue.
What is slack anyway?
In a growing economy, the citizens of a country become richer on average as the value of the goods and services they produce – the gross domestic product – increases.
But sometimes this value goes down, and a stagnation is usually indicated when it occurs for two three-month periods, respectively.
This is usually a sign that the economy is going badly, and it can mean – in the short term – that companies are laying off more workers.
Is the United States in a recession?
US GDP has fallen for two consecutive quarters – 1.6 percent in the first quarter of 2022, and 0.6 percent in the following quarter. This is a recession in most countries, not just the United States.
The body responsible for officially declaring a recession in the country is the Business Cycle Timing Committee — a relatively unknown group of eight economists selected by the nonprofit National Bureau of Economic Research. So far, the committee refuses to suggest there is a recession.
photo released, Getty Images
How do higher interest rates affect the US economy?
The US central bank – the US Federal Reserve – raises interest rates in order to lower prices. The idea is that the more expensive it is to borrow money, the less people spend and the more they save.
This reduction in consumer demand will bring down the prices of goods and services that have risen dramatically – but it takes time. Despite the recent drop in gasoline prices, food prices and rents continued to rise, which put the US central bank in an awkward position.
The Federal Reserve is expected to raise its key short-term interest rate by three-quarters of a point for the third time in a row at its last meeting, in hopes of accelerating the pace of price declines. Such a significant rise would raise the benchmark interest rate – which affects many consumer and commercial loans – to between 3 and 3.25 percent, the highest level in 14 years.
The risk is that it could stifle economic growth and cause unemployment to rise – a risk that fuels fears of the current recession.
“recession long Andhomely”؟
Some see an economic downturn as inevitable.
“There’s never been a moment when inflation is above 4 percent and unemployment is below 4 percent, and we haven’t had a recession in two years,” former US Treasury Secretary Larry Summers said recently.
Economist Nouriel Roubini – who predicted the crash of 2008 – agrees.
He expects a “long and dangerous” or ugly recession, as he describes it, that could last until 2023.
landing statusto smooth
Despite the dire warnings, many believe that a “smooth landing” (a borrowed term for when a plane lands smoothly and safely) – which means a moderate economic slowdown, rather than a complete recession – is still possible. In such a scenario, we might see slower growth without the disruptions associated with a full contraction.
The optimism is driven by the strong US labor market, with 315,000 new workers added in August, which indicates that the economy is not faltering, according to US Federal Reserve Governor Christopher Waller.
In a recent speech in Vienna, Waller dismissed recession fears, saying: “The strong US labor market gives us the flexibility to be assertive in our fight against inflation.”
The Fed said it would not hesitate to keep interest rates high, as long as that would bring down inflation. With the US central bank ready to show that it will not waver in its determination to cut rates, the process is unlikely to be smooth. If he raises interest rates too much, the economy may plunge into a recession, and if he raises them too little, inflation will continue to rise.
Atlanta Fed President Rafael Bostic acknowledged that the matter is very complicated, saying recently that a smooth landing is “very difficult”.