War in Ukraine, high food costs, soaring fuel prices, fractured supply chains, the lingering epidemic, and increasing interest rates all pose dangers to the US economy.
The Biden Administration The White House believes the US economy is strong enough to weather these risks, but voters and Wall Street experts are becoming concerned about an impending economic downturn.
With last year’s $1.9 trillion rescue package, President Joe Biden established a lasting rebound full of employment, or an economy overfed by government help that might tilt into a slump in the coming months. The question for Democrats ahead of the midterm elections is if voters can see personally how inflation can be controlled and the economy can run hot without overheating.
The 3.6 percent unemployment rate and last year’s excellent growth, according to Brian Deese, head of the White House National Economic Council, puts the United States in a safe spot relative to the rest of the globe.
“The essential question is whether the US economy’s strength is now an asset or a liability,” said Deese. “What we’ve done over the last 15 months has fueled an unprecedented economic recovery in the United States, putting us in a unique position to meet the challenges ahead.”
Others, on the other hand, envision an economy that will struggle to maintain growth while lowering inflation, which is at a 40-year high of 7.9%. Despite the fact that the Federal Reserve has announced a series of benchmark interest rate hikes and other initiatives to curb inflation this year, Russia’s invasion of Ukraine has destabilized global oil and food markets, potentially driving prices higher.
On Tuesday, Deutsche Bank became the first major financial institution to predict a recession in the United States. And Harvard University economist Larry Summers, a Democrat and former Treasury Secretary, pointed out that the US economy has gone into recession every time inflation has over 4% and unemployment has fallen below 5%, as it has currently.
Joe LaVorgna, who served in Trump’s White House and is now Natixis’ top economist for the Americas, believes that economic growth will be slightly around 1% this year, which is a very dangerous level.
Despite the fact that family balance sheets are strong and unemployment is low, salaries are not keeping pace with inflation, which may restrict consumer spending. Supply chain interruptions and increasing energy costs will also be stumbling blocks.
“Having a recession while the economy is expanding at 1% is like having a compromised immune system,” LaVorgna explained. “Any bad incident, no matter how minor, will knock you off course, and stall speed will turn into a recession.”
Despite this, LaVorgna believes that any slump will be light due to the solid labor market and family savings.
Consumer spending has been robust thus far, despite the public’s negative perception of the economy.
According to a study conducted by The Associated Press-NORC Center for Public Affairs Research last month, nearly seven out of ten Americans say the economy is in bad health. Despite this, Bank of America said that overall debit and credit card spending increased 11% year over year in March, and analysts concluded that consumers are “strong enough to weather the storm provided it doesn’t last too long.”
Consumers are also adjusting, as increasing oil prices have pushed average gasoline prices to $4.15 per gallon, according to AAA. Although gas prices have dropped in the last week, they are still 45 percent higher than a year ago.
Americans began to consume less oil and gas as a result of increasing pricing. According to the Energy Information Administration, the US consumed 21.9 million barrels per day on average during the first full week of February, and 19.9 million barrels per day during the first week of April. This decrease is greater than the seasonal drop-off in 2019, the final full year before the epidemic. During the same time span, gasoline use has decreased by more than 6%.
Job growth and wage rises, according to a recent Goldman Sachs research note, would buffer the economy from increasing commodity costs, according to Biden administration officials. The economy is more shielded from commodity shocks now than it was during the recessions of 1974, 1980, and 1990, as well as the financial crisis of 2008.
The White House has been watching with dismay as the public conversation about the economy has been reduced to inflation, believing that this largely ignores the strength of the labor market and the idea that families will be able to manage higher prices thanks to the coronavirus relief provided earlier.
The government expects that this year’s Fed rate hikes, as well as a reduction in deficit spending, will help to bring inflation down. However, the most important message the White House wants to send in response to public worries about the economy is that Biden understands them.
The problem is that many Americans are so concerned about inflation that they assume the job market — and the economy as a whole — is worse than it is. That means the White House will have to present a nuanced case in which it acknowledges the economy’s flaws while emphasizing the low unemployment rate over and over again in order for it to stick in the public’s consciousness.
Despite the strong job figures, questions about the economy are “a signal that we need to continue to make that point clearly and unequivocally,” according to Deese.
