Many economists believe that the U.S. will enter a recession next year. Several think it has already started. One debate about the downturn is how long it will last. Will it be two or three quarters? Alternatively, will it be two or three years?
Larry Summers, economist, former Treasury Secretary, and a past president of Harvard, continues to make one of the most powerful arguments that inflation will trigger a recession, and probably a substantial one. Summers recently appeared on CNN and commented: “I think there is a very high likelihood of recession. When we’ve been in this kind of situation before, recession has essentially always followed. When inflation has been high and unemployment has been low, soft landings represent a kind of triumph of hope over experience. I think we’re very unlikely to see one.”
Among the data that back up his assertion is inflation, which is at a four-decade high. In June, the consumer price index was up 9.1% compared with the same month a year ago. Prices on items Americans use the most – particularly gas, oil, and some foods – rose much more rapidly. Americans have started to lose their purchasing power.
The Federal Reserve’s plans to raise rates to push down inflation have failed according to its critics. Its actions should have started last year. This year’s quarterly increases of .75% a quarter are not nearly aggressive enough. The central bank has stated that rate increases that are too aggressive will tip the U.S. economy into a GDP growth downturn. (“Negative growth” has been used to describe this, but is an odd turn of phrase”)
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America also has to face the fact that most of the world’s advanced economies have problems worse than the U.S. Europe’s largest economies may already be in recession. There is growing evidence that China’s economy has stalled. Experience has shown that a recession in some of the world’s largest economies spreads across all of them.
24/7 Wall St.Most of the evidence about when a recession begins and how long it lasts show that not only does the U.S. face a recession, but that it may well last for several quarters.Â
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