The Biden administration does not believe that the United States is in a recession and is not preparing for it, according to White House officials, despite economic indicators suggesting the recession may be on its cards.
White House Chief of Staff Ron Klain told MSNBC on Thursday that “we are not in a recession. I want to be really, very clear, ”while White House Press Secretary Karine Jean-Pierre told MSNBC that the administration was not planning one.
Jean-Pierre said that “there are no meetings or anything like that in preparation for a recession because… look, what we are seeing now is a strong labor market.”
The US labor market is doing very well and the unemployment rate in October was just 3.7%, up slightly from 3.5%. in September.
The US economy added 261,000 jobs in October. jobs outside agriculture, slightly less than 263 thousand. in September, but more than some economists expected.
President Biden tweeted on Friday the number of jobs and the GPD, writing: “Jobs are rising, gross domestic product is rising, unemployment is falling. America grows stronger.
The president appears to have referred to the decline in unemployment since taking office.
In a statement released by the White House on Friday, Biden said that “while comments from Republican leaders certainly indicate they support the recession, the US economy continues to grow and create jobs even as gas prices continue to fall.”
However, many other economic indicators suggest that the United States may be moving towards a recession in the near future.
Gross domestic product
An economy is generally considered to be in recession if it experiences two quarters of negative gross domestic product (GDP) growth that the United States had in the first two quarters of 2022.
GDP increased by 2.6 percent. in the third quarter of 2022, but that does not mean that GDP growth will continue in the fourth quarter. Further declines in GDP would be a warning signal of a potential recession.
However, it is officially recognized that the US economy is in recession until it is done by economists on the Business Cycle Dating Committee, which operates under the auspices of the National Bureau of Economic Research (NBER).
NBER-i definition of recession is in part “a significant downturn in economic activity that is spread over the economy as a whole and lasts more than a few months,” and the commission has yet to say that the US is experiencing such an event.
“For Biden, skipping the chances of recession is now almost a political necessity,” said Thomas Gift, founding director of University College London’s Center on US Politics. Newsweek.
“Especially in the run-up to next week’s mid-term semesters, no one in the Democratic Party wants their leader on the campaign path, complaining about the prospect of a prolonged economic slowdown,” he said.
“It certainly wouldn’t be the first time Biden has played fast and loose with the state of the US economy,” said Gift. “Over the summer, the White House tried to redefine the recession by deviating from the standard measure of two consecutive quarters of negative GDP growth to avoid tying its administration to the word” R “.
Gift referred to the Biden administration’s reaction to the first quarter of negative GDP growth earlier in 2022.
In July, the White House rejected the notion that the US would be in recession should GDP fall in two consecutive quarters, leading to extensive discussions about the definition of the word “R” and accusations that the administration was trying to redefine it. .
The NBER has not announced that the United States is in recession and has not yet done so.
Projections of the Bloomberg Economics model published on October 17 showed that recession was almost certain for the next 12 months.
Bloomberg economists’ probability models gave a 100 percent chance of an economic slowdown by October 2023, compared with a 65 percent probability for the comparable period in the previous model update.
Economists polled by Bankrate, a company that provides financial services to consumers, for their Economic indicator for the third quarter There is a 65 percent chance of a recession in the next 12 to 18 months, he said. These estimates rose from 52 percent in the second quarter and 1 in 3, according to the first.
Both Goldman Sachs and JPMorgan governors said they both expect a recession in the US due to the Federal Reserve’s efforts to fight inflation. Barclays Bank predicts a contraction of major economies, including the US, in the fourth quarter, and that the country may narrowly avoid recession in 2023.
“Many economists and business leaders agree that the risk of a 2023 recession is quite elevated,” said Bankrate.com senior economic analyst Mark Hamrick. Newsweek, pointing to a company survey.
“For many Americans, however, the detrimental effects of high and sustained inflation have made this consideration almost academic. With the prices of basic necessities such as food, energy and shelter so high, many people and households have had to cut back on discretionary purchases. ,” He said.
“In his latest press conference, Federal Reserve Chairman Jerome Powell, in response to a journalist’s question, said the path is narrowing down to a soft landing, which means the likelihood of a recession is increasing,” continued Hamrick.
“At the same time, he said that a soft landing, ie avoiding the economic crisis, remains possible,” he added.
Hamrick said, “The severity and duration of the recession are also crucial. During the previous two, the unemployment rate reached its highest level of 10%. in October 2009 and 14.7 percent. in April 2020
“It may be that next time the unemployment rate will not rise so quickly, especially if the financial system can avoid the crisis, if inflation performs better, and the Fed can loosen its grip on monetary tightening,” he said.
The Biden administration has repeatedly pointed to the high number of jobs as an indication that the economy is healthy and not heading into recession.
Inflation and interest rates
One of the biggest concerns when it comes to a potential recession is the interest rate hikes by the Federal Reserve. The Fed seems determined to raise them to deal with high inflation, but it could cause an economic slowdown.
Inflation data for October will not be released until November 10, but the annual inflation rate in September was 8.2 percent, well above the Fed’s 2 percent target.
The Fed raised interest rates by 75 basis points on Wednesday, bringing the reference federal funds rate to a range of 3.75% to 4%. This is the interest rate at which banks lend and lend to other banks, and it affects the cost of paying off credit cards, mortgages, and vehicle financing, among other things.
It was the fourth consecutive so-called “jumbo” rate hike by 75 basis points and the sixth successive rate hike in general.
This raised further fears that Fed actions could provoke a recession, discouraging economic growth by increasing borrowing costs.
Editors Washington Post wrote on Tuesday that the Fed may have to trigger a recession to deal with inflation, while CNN survey published on Thursday showed 75 percent of likely voters felt the United States is in a recession.
“As for the Biden administration, given the narrow path to legislation in the Senate, little can be expected on that front at this point,” said Hamrick. Newsweek.
“Fiscal policy, as recommended by the legislature and executive, must avoid conflict with the monetary policy pursued by the Fed,” he said. “We recently witnessed the conflict seen in the UK where the monetary and fiscal authorities were at odds until they apparently weren’t, partly due to a change of leadership.
“This should be a warning shot for elected officials in Washington to avoid such political collisions with a central bank that is politically independent for a reason,” Hamrick added.
The recession is already part of nationwide talks with early terms just a few days apart, and economists are sounding the alarm on a potential economic slowdown, even though the Biden administration said it was not preparing for it.
Newsweek asked the White House for comment.
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