According to Treasury Secretary Janet Yellen, a U.S. recession is still a possibility in the near future, despite the country’s progress in bringing down high inflation levels. Yellen made these remarks in response to the Department of Labor’s June jobs report, which revealed that the addition of about 209,000 jobs was the weakest showing in over two years. Yellen acknowledged that the job market has become stronger, but cautioned that a slower pace of ongoing job gains could be expected as the market stabilizes at a high level.
Yellen defended the current state of the economy, crediting President Joe Biden’s economic policies and vaccination efforts for the rapid rebound and recovery of the labor market. Nevertheless, she acknowledged that inflation is still “too high” but claimed that the consumer price index has started to ease. In May, prices rose 4% year-over-year, exceeding the Federal Reserve’s target of 2%. Yellen expressed her hope that inflation could be brought down as the labor market improves.
Although Yellen expressed optimism about the economy, there are concerns of a potential recession. The Federal Reserve is expected to raise interest rates at least once more and keep them high for months, which could have a significant impact on borrowing costs for consumers and businesses. Economists caution that these actions may contribute to a full-blown recession.
Fed Chair Jerome Powell recently supported this notion, stating that the central bank’s key rate has not been restrictive enough for an extended period. Powell emphasized that policy needs more time to have a meaningful effect on the economy. During a global conference in Portugal, Powell and other central bank leaders from struggling economies discussed the challenge of persistently high inflation. The Bank of England even raised its key rate, potentially pushing the UK into a recession, while Europe’s economy has stagnated in recent months.
Despite the concerns, the World Bank recently raised its growth outlook for 2023, noting that the United States and other major economies have demonstrated greater resilience than initially predicted. However, the World Bank also highlighted that this year will still mark one of the slowest periods of growth in the last five decades.
Goldman Sachs revised its odds of a U.S. recession in the next year to 25%, down from the previous estimation of 35%. The ease of banking sector stress and an anticipated debt ceiling deal, which is expected to result in minor spending cuts, influenced this adjustment. Additionally, the International Monetary Fund no longer expects a recession in the UK this year. Nevertheless, the overall outlook is becoming increasingly pessimistic.
The World Bank predicts that the impact of higher interest rates and tighter credit will be more significant in 2024 than previously anticipated. There is also growing discussion of stimulus measures in China to support its economy. Global economic data is currently delivering negative surprises at the fastest rate since September, according to a Citi index.
Furthermore, some analysts have coined the term “richcession” to describe the current situation in the United States. They argue that major job cuts have primarily affected higher-paying industries like technology and finance, which predominantly employ professional workers with financial cushions to withstand layoffs. Consequently, these job cuts are less likely to have a substantial negative impact on the overall economy.
Despite the viewpoints of economists and experts, many Americans remain concerned about an impending economic downturn. A recent survey conducted by Nationwide revealed that 68% of the 2,000 American adults surveyed anticipate a recession within the next six months, with 80% believing it will be severe. Experts, on the other hand, are divided on the matter, with some agreeing with the public’s fears and predicting a recession, while others believe it has been delayed but not canceled.
It is important to note that this article includes information sourced from The Associated Press and Reuters.
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