Americans are increasingly concerned about the possibility of a recession.
Earlier this month, the Federal Reserve began raising interest rates to ease inflationary pressures. During the first quarter of 2022, as consumers and businesses continued to spend, U.S. gross domestic product fell 1.5%, the first decline since the second quarter of 2020, according to The Associated Press.
But that doesn’t necessarily mean the United States is falling into a recession.
HuffPost spoke with four economics experts about recession fears, the state of the US economy, and what we can do to prepare for what lies ahead.
What is a recession?
According to the International Monetary Fund, the classic definition of a recession is a continuous decline in GDP – which estimates the value of a country’s production of goods and services – over two consecutive quarters.
In the United States, the National Bureau of Economic Research states that a recession “involves a significant drop in economic activity that spreads throughout the economy and lasts for more than a few months”.
Why is there anxiety about the state of the US economy?
Miesha Williams, director of the economics program at Morehouse College, attributed the economic anxiety to three main factors: rising gas prices due to Russian President Vladimir Putin’s war in Ukraine, the scarcity of affordable housing and consumer goods and “apparently increased inflation”.
“Individuals and households are indifferent between buying a meal at home or in a restaurant, because there are no savings between the two,” said Williams, giving an example of how the anxiety arises.
To fight inflation, the Fed raised interest rates by half a percentage point earlier this month, the biggest hike in 22 years, according to AP.
The Fed “expects continued increases in the target rate for the federal government
the funds rate will be appropriate,” Federal Reserve Chairman Jerome Powell said after the announcement.
The Fed’s goals, Powell explained, are to keep the economy close to full employment as well as maintain price stability.
“Inflation remains well above our long-term target of 2%,” Powell added.
Josh Bivens, director of research at the Economic Policy Institute, said most of the anxiety was driven by “the relative novelty of inflation we’ve seen over the past year.”
“The concern is that containing it and bringing it back to more normal levels could take a lot of political dexterity, and, if policymakers can’t do that, it could lead to a recession,” Bivens told HuffPost.
Minutes from the Fed’s Open Market Committee meeting this month, where the 12 members set monetary policy, including interest rates, show the challenges for the United States and other global economies .
“Participants observed that developments associated with Russia’s invasion of Ukraine and COVID-related lockdowns in China pose heightened risks to both the United States and economies around the world,” the report said. minutes. “Several participants commented on the challenges monetary policy faced in restoring price stability while maintaining strong labor market conditions.”
“Given the high degree of uncertainty surrounding the economic outlook, participants felt that risk management considerations would be important in deliberations over time regarding the appropriate policy direction.”
Any approach the Fed takes will have consequences for the US economy and the possibility of a recession, Bivens explained.
“Simply put, if we have a recession because the Fed is raising interest rates too quickly and too high, that will be a clear mistake,” Bivens said.
Christelle Khalaf, associate director of the Center for Business and Economic Analysis at the University of Wyoming, said it’s worth considering that policies implemented during the pandemic to support families may not have been intended to cause inflation.
“While most economists agree that these policies were necessary, the exact size of the intervention needed is a more debated topic,” Khalaf said. “In 2008, the intervention was not important enough. In 2020, maybe it was too big.
“So does the Fed know exactly how to cool the economy without causing a recession? Perhaps. However, this kind of uncertainty can worry businesses, markets and economists,” Khalaf continued.
Dedrick Asante-Muhammad, the head of membership, policy and equity at the National Community Reinvestment Coalition, said the uncertainty was also driven by the lingering pandemic.
How has the White House responded to recession concerns?
President Joe Biden told reporters on Monday that a recession was not inevitable.
“Imagine where we would be with Putin’s tax and the war in Ukraine if we hadn’t made this huge progress,” Biden said. “Our GDP will grow faster than China’s for the first time in 40 years.”
But Biden acknowledged that the United States, like other countries, also faces major pressures.
“We have issues that the rest of the world has, but less than the rest of the world because of our internal growth and strength,” Biden added.
Brian Deese, the director of the National Economic Council, agreed with Biden, pointing to a strong labor market and business investments. But he added: “There are always risks.”
“Our economy is in transition from what has been the strongest recovery in modern American history to what can be a more stable and resilient period of growth that works better for families,” Deese said Sunday at “l CNN’s ‘State of the Union’. “There is no doubt that we are facing serious global challenges at the moment, inflation foremost among them. And it hits families hard.
Are we already in a recession?
Despite the drop in GDP in the first quarter, the economy is expected to grow.
“Second-quarter growth is expected to be between 2% and 3%, and job growth remains strong,” Bivens said.
Williams said it can be difficult to gauge whether the country is falling into a recession.
“Most economists will tell you that we generally don’t know there’s a recession until we’re already there,” Williams said. “If affordable housing becomes a national issue as landlords recoup losses from unpaid rent during the pandemic and housing markets become unbearably inflated while adjusting to the current ‘rush’ for affordable housing, then consumer spending will take a back seat”.
This, coupled with inflated gasoline and food prices for a long time, could mean that other consumer goods are no longer considered essential, Williams explained.
“Essentially, consumer spending, which is growing in the economy as a source of income for employers and their workers, may slow due to current pressures,” Williams continued. “However, we should be concerned if we and our friends are fearful of spending or have spending worries for a period of four to five consecutive months.”
Asante-Muhammad said he was worried about how people would be affected.
“My worry is less about the United States falling into a recession and more about the amount of human suffering that comes with it,” Asante-Muhammad said.
Asante-Muhammad explained that government interventions to support household finances and health in the first year of the pandemic meant there was “little household economic suffering” at the time.
“I fear that kind of support will not come with the possible coming recession, so households may suffer more in a milder recession of 2022 than in the short but dramatic COVID recession of 2020,” Asante continued. Mohammad.
What can we do to prepare for the possibility of a recession?
Khalaf said the best thing households can do to prepare for a possible recession is to save.
“Increasing savings now not only creates a buffer for people in a recession, but can also contribute to lower demand, which can dampen inflationary pressures,” Khalaf said.
Bivens also noted the importance of political decisions.
People “should demand that policymakers — both the Fed and their representatives in Congress — act quickly if a recession hits, providing much-needed relief to families,” Bivens said.
How are other global economies doing compared to the United States?
Asked if some G-7 economies are already in recession during a roundtable on Monday at the Davos Economic Forum in Switzerland, Kristalina Georgieva, Managing Director of the International Monetary Fund, replied: “Not at this stage. “.
“That doesn’t mean it’s out of the question,” Georgieva continued. “We lowered our growth projections for this year in April for 143 countries. This represents 86% of global GDP.
Georgieva noted contributing factors, including Russia’s war in Ukraine, dollar appreciation, debt and China’s slowdown due to COVID. The rest of 2022, she said, “is going to be a tough year.”
World Bank President David Malpass said on Wednesday that Germany’s economy was already badly hit by high energy prices, according to Reuters.
“As we look at global GDP…it’s currently hard to see how we’re avoiding a recession,” Malpass said.