Debate Sparked on if US Economy is Now in a Recession


The general rule when declaring a recession is two consecutive quarters of decline in economic performance or Gross Domestic Product (GDP).

The US economy has now contracted for two consecutive quarters. However, on Wednesday Jerome Powell, chairman of the Federal Reserve, said “I do not believe that the United States is currently in a recession.”

Although the government says the US economy is not in recession, the metric that has been used so far says otherwise.

 

  • READ MORE: How to prepare for a recession

The recession of 2022

With the economy already battered by the disruptions caused by the pandemic, fears of a recession are upon us. Gross domestic product fell at an annualized rate of 0.9 percent after a 1.6 percent decline in the first three months of the year, the Bureau of Economic Analysis said Thursday.

The US is currently facing near-record inflation and high gas prices, with more and more Americans finding themselves with less purchasing power as prices continue to rise. Over the past 12 months, inflation rose to 9.1% according to the Bureau of Labor Statistics.

The Biden administration maintains that it can avoid a recession

However, the government argues that other factors indicate that the economy is not in recession despite the economy contracting. He points out that unemployment remains at a historic low of 3.6% in June for the fourth consecutive month. This as the US created around 2.7 million new jobs in the first half of 2022 and another million in the second quarter. Also, gas prices are in their sixth week of decline as recent interest rate hikes will keep inflation at a four-decade high under control.

Despite the speculation, recessions are difficult to predict and even more difficult to assess their magnitude. Some could be short-lived, while others may last longer, it is best for businesses to prepare for any outcome as booms and busts are natural cycles in any economy.

The Federal Reserve adjusts interest rates to control inflation

As inflation continued to rise to record levels, the Federal Reserve was forced to raise interest rates for a second time by another 0.75% on Wednesday, July 27. rates from zero to nearly 2.5, a move not attempted since the 1980s.

By raising interest rates, the Federal Reserve hopes to discourage borrowing and encourage saving, thereby reducing the amount of money in circulation. This, in turn, will reduce the demand for goods and services and reduce inflation.

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This article, “Debate Sparked on if US Economy is Now in a Recession” was first published on Small Business Trends



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