Among the most contested subjects across many economists, business leaders, and politicians is whether America will enter a recession, perhaps at the start of 2023. Another, perhaps a modest group that is growing, believes that the recession has already begun and will stretch into next year, and perhaps beyond.
[in-text-ad]
Federal Reserve Chain Jerome Powell seems to have capitulated to a view he has rejected for months. Inflation will cause a recession. Among the reasons is that it has forced the Fed to raise rates to pull price increases down. In the process, the economy has begun to stall.
Powell’s primary intellectual nemesis, former Treasury Secretary and Harvard president Larry Summers, continues to blame the Fed for the current circumstance. If the Fed has acted sooner, he says with great regularity, the recession mess might have been avoided. He adds that to tame inflation, unemployment will need to rise to a level above 5%. Only then will consumer demand be bled out of the economy. A recession, he reasons, is the only medicine to bring down inflation.
Recently, Gary Friedman, CEO of luxury products company RH, said anyone who doesn’t believe the U.S. economy is in recession is “crazy.” He should know for two reasons. The first is that his finger is on the pulse of what the wealthy do or do not buy. The other is that his company’s stock is down almost 50% this year.
The main argument that there is not a recession now is that unemployment is a mere 3.7%, which is near a post WWII low. The figure is very close to what it was just before the COVID-19 pandemic started. How could the millions of jobs lost due to the virus be replaced if America’s GDP engine were not running strong? The argument is sensible and convincing. Its Achilles heel could be that inflation has robbed many employed people of their purchasing power and will start to burn into their ability to pay for day to day expenses.
If there is a recession today, it may be like an iceberg. The most dangerous part is what cannot be seen.
Sponsored: Find a Qualified Financial Advisor
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
