A fall in Gross Domestic Product at an annual rate of 0.9 percent confirmed the already existing fear of recession in the US. Even amidst the monetary policy tightening by the Federal Reserve to battle against high inflation, the US economy has contracted.
The US has been stepping into the manacles of recessions as the GDP falls to 0.9 percent in the second quarter. As per the US Commerce Department, this is a bigger decline in the first three months of the year.
Negative Growth
The US has experienced negative growth in the last two quarters which is a sign of the upcoming recession. This would result in global consequences and an adverse effect on domestic political costs.
Though Joe Biden is confident enough about the world’s largest economy, he’s been criticized as the reports are held as proof against his words.
Rate of Recession
Relying upon the labor market, Biden stressed the point, “We’re not going to be in a recession, in my view.” But when an economy is falling, a rapid increase in adding jobs in a country with near record-low unemployment is considered unusual. This could further increase the rate of recession.
Republicans countered that the report shows “Democrats’ reckless economic policies are destroying our economy”.
Hitch in Supply Chain
The US witnessed a decline to 1.6 percent in the first three months even though exports have increased. But as per the reports, a decline in government spending and private’s investment in goods fell in the second quarter.
The hitch in the supply chain due to lockdowns and Russia’s war in Ukraine has led to an increase in the prices of food and fuel. Therefore, the US economy is now encountering the battle of sky-high inflation.
Additionally, when measured against personal expenditures, the price index has risen to 7.1 percent in the last three months which resembled the first quarter.
Federal Reserve of US
Chair of the Federal Reserve of the United States, Jerome Powell signals the upcoming of more rate hikes in order to minimize the pressure of a downturn or experience massive scale joblessness. Though the path towards it is narrowing, Powell vows to battle inflation without surrendering.
“We’re trying to do just the right amount. We’re not trying to have a recession and we don’t think we have to,” he told reporters.
A fourth-time increase in the interest rate as it hiked to 75 basis points on Wednesday. The central bank stressed “another unusually large increase” if needed.
Defining Recession
The National Bureau of Economic Research explains recession as
“a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”
Though there is job growth to 456,700 per month with strong wage returns, still there is an increase in the downturn risks.
A Critical Time
The reports of confirmation of recession come during a critical time. Businesses and consumers have been struggling under the pressure of inflation and high borrowing costs.
With the increase in benchmark interest rate by three-quarters of a point for the second time, the push to conquer the worst inflation outbreak in four decades is being monitored.
The hopes prevail as Fed is trying for a “soft landing”. Slowing down the economy by controlling the rocketing prices without triggering a recession.
The Inflation
Since 1981, the prices for petrol, groceries, and amenities have been increasing at a faster rate. In order to cool the economy and ease the pressure on prices, the US central bank has raised the borrowing costs. Even though the recession has not yet officially commenced, the fears among the people and sectors have been rising.
Many companies like Facebook and Instagram have slowed down the hiring process. Other firms like the property sector have announced job cuts.
Read More: The US recession has a mid-term impact on India.
