Economists predict a severe recession in the United States

By Michael V. Bolgent

Administrator

Posted: June 13, 2022 at 5:53 PM, Updated: June 13, 2022 at 5:53 PM

economic hardship

Economic experts predict that the US economy is about to enter a recession, dismissing the Federal Reserve‘s more upbeat predictions. Former Treasury Secretary Larry Summers warned on Sunday that the Federal Reserve’s inflation forecasts were much too optimistic, and urged the central bank to confront the recession head-on.

Summers countered current Treasury Secretary Janet Yellen’s claim that “nothing….suggest[s] a recession is in the works” during a Sunday appearance on CNN, saying that “When inflation is as high as it is right now and unemployment is as low as it is right now, it’s almost always been followed, within two years, by recession.”

Summers cited what’s going on in the stock and bond markets, as well as recent rock-bottom consumer mood data, as evidence that there’s clearly a chance of recession in the next year and that we’ll have a recession within the next two years. He went on to say that depending on the price of oil, things could get even worse, citing the risk that it will rise higher.

Gas prices in the United States are already at record highs, having recently surpassed an average of $5 per gallon – more than double what they were when President Joe Biden took office – The Nasdaq and S&P 500 stock indices both had their worst week of the year earlier this month, following an 8.6% increase in consumer prices, which was higher than expected.

Yellen has believed that consumer and investment spending are robust enough to avoid a recession, even admitting she was “wrong” about the soaring inflation that has marked Biden’s administration.

Jerome Powell, the chairman of the Federal Reserve, has also struggled to downplay the US central bank’s difficulties, admitting that raising interest rates to combat inflation could cause “some pain” and raise unemployment rates “a few ticks.” He does not appear to be persuading his peers, however.

“This is not landing a plane on a regular landing strip,” said Tara Sinclair of George Washington University.

“This is landing a plane on a tightrope, and the winds are blowing. The idea that we are going to bring incomes down just enough and spending down just enough to bring prices back down to the Fed’s 2 percent target is unrealistic..”

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Indeed, a recession is expected by the end of next year, according to 70% of leading economists polled by the Financial Times on Sunday, and 40% believe it will happen before the end of the second quarter of 2023. The National Bureau of Economic Research declares recessions, which are defined as “a severe fall in economic activity that is dispersed across the economy and lasts longer than a few months.”

According to a poll taken earlier this month, the majority of Americans believe the United States is already in a recession. Fully 55% of those polled, including 70% of Republicans and 43% of Democrats, believe the recession that experts are now debating has already happened. Faced with rising food and gasoline prices, they are unconvinced by the Biden administration’s claims that the US is recovering.

As the Federal Reserve raises interest rates in an attempt to curb inflation, the amount of debt carried by the typical American will only grow, stressing already stretched resources and adding to the economic hardship. Few economists have proposed alternatives to raising interest rates, however there is disagreement over whether doing so swiftly or gradually will inflict the least amount of pain.

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