Can the US Avoid a Recession?

While economists and experts firmly believe the largest economy in the world is now on the verge of a recession, President Joe Biden and his administration continue to insist a recession is “not inevitable.”

There are signals informing forecasts by experts that the U.S. economy could enter a recession starting next year. The United States needs to overcome many challenges to avoid this unwelcome outcome.

Stay Positive

When reporters chased after President Joe Biden on June 20 asking about expert predictions that the U.S. economy was about to enter a recession, Biden answered, “the majority of them aren’t saying that.”

“I don’t think it is [inevitable]. I was talking to Larry Summers this morning and there’s nothing inevitable about a recession,” Biden said. He was referring to Summers’ interview, which caused an uproar after Summers said he believed recessions usually occur when inflation is high. Previously Biden also said as much when the Federal Reserve raised interest rates to a record level on June 15.

Biden administration officials have broadcast a similar message. “I expect the economy to slow … but I don’t think a recession is at all inevitable,” U.S. Treasury Secretary Janet Yellen told ABC.

Similarly, Director of the National Economic Council Brian Deese said the United States is strengthening the economy, and he highlighted notable bright spots, including a low unemployment rate, in dismissing forecasts of a recession.

After two years of COVID-19, the U.S. economy is in a feverish state because inflation has overheated like never before. The economy has also sustained other shocks, such as hostilities in Ukraine and lockdowns among Chinese manufacturers. Rising prices have forced the Fed to repeatedly increase interest rates to break the fever, but at the same time, these moves risk driving the economy into a recession. The United States’ challenge is to prescribe the right dose of medicine to prevent the economy from dying.

Yet, according to analysts, the thing Biden’s administration worries about most is that talk about a recession could make it come true. According to Catherine Rampell of The Washington Post, a pessimistic mindset could impact consumers and businesses if they cut their spending, reduce their staff, delay making investments or cancel orders. This negative feedback loop could also lead to a recession despite the Fed’s best efforts.

This is why White House officials — and to some degree officials at the Fed — are trying to express cautious optimism. “Saying recession is ‘not inevitable’… allows them to acknowledge people’s pain and fears, while providing some room for hope,” Rampell commented.

“By the end of next year, we could be seeing a recession in the American economy,” said former U.S. Treasury Secretary Summers speaking on NBC June 19.

Many Challenges

Most important of all are the actions taken by the government to reinvigorate the economy, and that isn’t easy. In the past few months, Washington has tried many measures, from finding additional oil sources in the Middle East to incentivizing domestic oil production. Recently, much of the public believes that the U.S. seems to have wasted precious time that could have been used to intervene after warnings about the risk of inflation were sounded last year.

On June 20, Biden said he is seriously considering a temporary federal tax holiday to lower gas prices before Independence Day on July 4, a time when millions of Americans go on vacation. Yellen said this measure is “not perfect,” but it is also one way of combating inflation, according to Reuters.

The White House and House Democrats are also holding talks about drafting legislation to combat inflation and keep the budget deficit in check. The legislation details are still under discussion, but Bloomberg has reported the bill could include a price ceiling for insulin (an important medicine for diabetics) and federal investment in clean energy and fossil fuels. It could also include tax increases for the wealthy and for business.

Some other measures the U.S. government could implement immediately include the removal of restrictions on trade and maritime shipping in order to lower costs; promoting legal immigration to solve the labor shortage; and supporting energy companies to lower fuel costs.

A Grim Forecast

On June 20, forecasts continued to suggest that the chances U.S. might fall into recession are greater than the chances for other outcomes. “With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,” [Edna Curran and] Bloomberg wrote, quoting assessments from economists at Nomura Holdings Inc. Similarly, Deutsche Bank cited data showing the U.S. economy has started to slow down, believing a recession, if it occurs, will be more serious than previous forecasts.