Inflation, long downplayed by the administration as “transitory,” is running wild. Prices increased 9.1 percent for the year ending in June, further driving the Federal Reserve down a path of big interest rate hikes that must make up for lost time.
War in Ukraine and COVID-related global supply chain snarls have pushed prices higher. On Wednesday afternoon, in an attempt to cool down the economy and rein in inflation, the Fed is all but certain to raise interest rates by 0.75 percent. This expedited drive to discourage spending brings recession risk with it.
Heavily touted by President Biden, on the other hand, is America’s low, low unemployment rate – 3.6 percent in June. While it’s true that this is an anomaly, it’s no shield against economic downturn. (On top of that, successfully curbing inflation will likely weaken the labor market.)
The president delivered some gentle reassurance on the economy at a Monday news conference: “My hope is we go from this rapid growth to a steady growth, so we’ll see some (inflation) coming down. God willing, I don’t think we’re going to see a recession.”
Biden’s comments came at the beginning of a significant week for the economic fortune tellers of the world. On Tuesday, we learned that consumer confidence fell again in July, hitting the lowest level since February 2021.
On Thursday, what’s seen by some as a deciding number will be released: second-quarter gross domestic product. The economy shrank in the first quarter of this year. Most of the time, when GDP is negative for two consecutive quarters, it’s evidence of a recession. Treasury Secretary Janet Yellen is among those arguing that this common “rule of thumb” is inapplicable at such an uncommon, murky time.
The official umpire of recessions in the U.S. is the National Bureau of Economic Research, which has been tracking peaks and troughs since 1854. Its definition is “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” By that standard, the U.S. could be safe – officially – for some time yet.
We can join in the squabbling over semantics and odds, or we can look around at the state of things and see an abundance of unofficial “data points.”
Inflation has forced the Maine Department of Transportation to cut back on highway projects. Citing a desire to keep the price of a lobster roll down in a trying business environment, an Arizona-based drive-thru restaurant chain has purchased a wharf on Bailey Island. A Portland pawn shop reports four in 10 customers are trading in belongings for cash for the first time. Even your local Walmart has been dinged by price-conscious shoppers’ retreat from spending.
Yellen has maintained broad agreement with Biden on the low likelihood of recession, brandishing the strength of the labor market as well as household balance sheets that are “generally in good shape.” Former Treasury Secretary Larry Summers, comparatively free from the need for political tiptoeing, told CNN on Monday “the great likelihood is that we will have a recession”.
By calling what’s ahead a “transition,” the Biden administration is playing it safe rather than prudent. Regular Americans should play it safe right now, too. Let’s not have the onset of the second recession in as many years take us by surprise.
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