“The Yemeni American” – Follow-ups:
Is the US economy close to falling into a “serious” recession? According to the latest survey conducted by The Economist and YouGov, three out of five Americans say the United States is in a recession.
(BBC Arabic) discussed this in a report by its correspondent in New York, Michelle Fleury, who wondered: If this is true, why does he not announce it officially?
According to the report, rising inflation — the highest rate since the 1980s — has left many in a bad mood, and some Americans are relying less on their own cars to save on gasoline, ditching expensive organic products, and looking for deals to save a few dollars.
There’s more bad news, says Florey, as the once-booming housing market is slowing, making equity in real estate companies risky.
The Standard & Poor’s 500 Index (which includes shares of the 500 largest US financial companies) has also taken a hit, falling 19% for the year, causing investors to lose trillions of dollars.
However, according to the report, this may only be a dip in the atmosphere, as the official body responsible for announcing such details remains silent on the issue.
What is stagnation anyway?
In a growing economy, the citizens of a country get richer on average as the value of the goods and services they produce (GDP) increases.
But sometimes this value goes down, and a stagnation is usually indicated when it occurs for two three-month periods, respectively.
Usually, according to Florey, this is a sign that the economy is going badly, and in the short term it might mean companies are laying off more workers.
Is the United States in a recession?
US GDP fell in two consecutive quarters, 1.6 percent in the first quarter of 2022, and 0.6 percent in the next. That’s a recession in most countries, not just the United States.
As for the body responsible for officially declaring a recession in the country, it is the Business Cycle Timing Committee, a relatively unknown group of eight economists selected by the National Bureau of Economic Research, a non-profit body.. So far, the committee refuses to mention the existence of a state of stagnation.
Is the US economy heading for a “ugly” recession?
The US central bank, the US Federal Reserve, raises interest rates in order to lower rates, the idea is that the more expensive it is to borrow money, the less people spend and save more.
This reduction in consumer demand will bring down the prices of goods and services that have risen significantly, but it takes time.
Despite the recent drop in gasoline prices, food prices and rents continued to rise, putting the US central bank in a tight spot.
According to the report, the Federal Reserve is expected to raise the main short-term interest rate by three-quarters of a point for the third time in a row at its last meeting, in the hope of accelerating the pace of price declines, and this significant rise would raise the benchmark interest rate, which affects many loans. Consumer and commercial activity, to between 3 and 3.25%, the highest level in 14 years.
The danger, according to Michelle Florey, is that this might stifle economic growth and cause unemployment to rise, a risk that fuels fears of the current recession.
A ‘Long and Ugly Recession’?
Some see an economic downturn as inevitable.. Former US Treasury Secretary Larry Summers said recently: «There’s never been a moment when inflation is above 4% and unemployment is below 4%, and we haven’t seen a recession in two years.».
Economist Nouriel Roubini, who predicted the crash of 2008, agrees with this view. He predicts a “long and dangerous”, or ugly, recession that might last until 2023.
Despite the dire warnings, many believe that a “smooth landing” (a borrowed term from flying when the 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 disturbances associated with complete contraction.
Florey believes that 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 once morest inflation».
The Fed, according to the report, 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 intention to cut rates, the process is unlikely to be smooth, and if it raises interest rates too much, the economy may plunge the economy into a recession, but if it raises them by too little, inflation will continue to rise.
Atlanta Fed President Rafael Bostic admitted that the matter is very complicated, saying – recently – that a smooth landing “is very difficult.”
