Economic experts predict that the US economy will plunge into recession and dismiss more optimistic predictions by Federal Reserve. Former Treasury Secretary Larry Summers warned on Sunday that the Fed’s inflation-related forecasts have been “Too optimist!” and insisted that it confront the recession staring it in the face.
“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 declared during a Sunday appearance on CNN, countering current Treasury Secretary Janet Yellen’s claim that “nothing….suggest[s]Recession is imminent.”
Summers pointed to “what’s happening in the stocks and bonds markets” and the recent rock-bottom consumer sentiment numbers as proof that “there’s certainly a risk of recession in the next year” and that “it’s more likely than not we’ll have a recession within the next two years.” Things could get even worse depending on the price of oil, he added, highlighting the “There is a possibility that the price will go up..”
Gas prices are already at record highs in the US, recently surpassing an average of $5 per gallon – more than twice what they were when President Joe Biden entered the White House – and the Nasdaq and the S&P 500 stock indices recorded their worst week of the year earlier this month in the wake of an 8.6% rise in consumer prices, even higher than predicted.
Despite the sense of doom permeating markets, Yellen has insisted that consumer and investment spending are strong enough to avert a recession – even as she herself has admitted she was “It is wrong” about the galloping inflation that has characterized Biden’s presidency.
Federal Reserve Chair Jerome Powell has also struggled to downplay the difficulties facing the US central bank, though he has acknowledged that raising interest rates in an attempt to scupper inflation may cause “Some pain” and kick up unemployment rates “A few ticks.” However, he does not appear to be convincing his peers.
“This is not a way to land a plane at a regular landing spot,” George Washington University economist Tara Sinclair pointed out. “It’s like landing on the edge of a tightrope. 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.”
In fact, the Financial Times polled 70% of economists to predict a recession by the end next year. And 40% think that it will occur before the end 2023. Recessions are officially declared by the National Bureau of Economic Research, which defines one as “A significant drop in economic activity, which is widespread across the economy and lasts longer than a few weeks.”
US Consumer Prices Rise Even More Than Expected
A poll earlier in the month found that most Americans think the US is already in recession. A poll conducted earlier this month found that 55%, 70%, and 43% respectively of Republicans, believe the recession, which is still being discussed by economists, has arrived. Faced with the soaring price of staples such as food and gasoline, their opinions remain unswayed by the Biden administration’s insistence that the US is actually in recovery mode.
As the Fed hikes interest rates in an attempt to rein in inflation, the amount of debt shouldered by the average American will only increase, further stretching most families’ already-thin resources and piling on the economic pain. Although few economic experts offer alternatives to raising interest rates in an attempt to rein in inflation, there are still questions about whether it is better for the economy to increase them slowly or quickly.
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