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A recent Economist/YouGov poll found that 3 out of 5 Americans believe the US is currently experiencing a recession.
The high rate of inflation—the highest since the 1980s—has many people down. As a result, some Americans are reducing their driving to save on gas, skipping expensive organic products, and hunting for bargains to save a few bucks.
More awful news is available: the once-booming real estate market is now cooling, making
the equity-locked-in property less certain. The S&P 500 has also suffered. Young investors and soon-to-be retirees alike are already feeling the heat as the index is down 19% for the year, wiping out trillions in worth.
However, given the formal governing body’s silence on the subject, this may be a recession of mood.
In any case, what is a recession?
A nation’s citizens generally become a little bit wealthier in a developing economy as the value of the goods and services it produces, or its Gross Domestic Product (GDP), rises.
However, this value can occasionally decrease, and when this occurs twice in a row during three-month intervals or quarters, it is generally considered to be a recession.
Typically, it’s a sign that the economy is struggling and may indicate that businesses will be forced to make more short-term layoffs.
The US GDP has decreased for two straight quarters: 1.6% in the first quarter of 2022 and 0.6% in the following. However, that is a recession in most nations, not in the US.
The National Bureau of Economic Research, a nonprofit institution, selects the Business Cycle Dating Committee, a little-known team of eight economists, to declare the official recession. The committee has so far refrained from using the R-word.
What impact do rising interest rates have on the US economy?
The US Federal Reserve, the central bank of America, is hiking interest rates in an effort to drive down prices. As a result, it is hoped that people will spend less and save more by raising the cost of borrowing money.
Product and service prices will drop after this drop in consumer demand, but it may take some time. Despite recent drops in gasoline prices, rising expenses for rent and food have left America’s central bank in a difficult position.
At its most recent gathering, the Fed is anticipated to increase its benchmark short-term interest rate by 0.75% for the third time in a row in an effort to hasten the price decrease. Its benchmark rate, which affects many consumer and corporate loans, would increase significantly in response to such a huge increase, reaching its highest level in 14 years at a range of 3% to 3.25%.
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They run the risk of stifling economic growth and fueling current recession fears by increasing unemployment if they go too far.
Why a soft landing is necessary
Despite the grave predictions, many people still think a “soft landing”—a mild economic downturn as opposed to a full-blown recession—is still feasible. In this case, growth might be slower without going through the turbulence that comes with a full-blown slump.
America’s robust job market is what’s fueling this optimism. In August, employers hired 315,000 additional people. According to US Federal Reserve Governor Christopher Waller, there is hardly an indication of a faltering economy.
The Fed has stated that it won’t think twice about keeping interest rates high for however long it takes to reduce inflation. However, the process is not going to go smoothly since the US central bank is getting ready to demonstrate that it will not waiver in its determination to cut prices. The economy could enter a recession if interest rates are raised too much. On the other hand, increase them too little, and inflation keeps rising.
When he recently said that a soft landing is exceedingly tricky, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, conceded that it was a difficult high-wire performance to pull off.