Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Is the US heading for a recession? Here’s what you need to know

Is the US heading for a recession? Here’s what you need to know

Many signs point in that direction. We have answers to questions that might be on your mind

Last Friday, the US Bureau of Labor Statistics released its May Consumer Price Index (CPI) report, which showed inflation worsening. On Wednesday, the Federal Reserve responded by raising interest rates by three-quarters of a point. Yet the bigger story, and bigger worry, is not inflation. It’s the distinct possibility of recession. Or perhaps both (what’s termed “stagflation.”) Here are some frequently asked questions:

1. Is the US heading for a recession? Many signs point in that direction. New home construction slowed in April. Mortgage demand continues to decline. Some of the country’s largest and most influential retailers are reporting disappointing sales and profits. The stock market is in bear territory. Futures markets are signaling trouble ahead.

2. What exactly is a recession? “Recession” is a technical term, defined in the US as two consecutive quarters of shrinking gross domestic product. As a practical matter, recessions mean fewer jobs and lower wages.

3. When is a recession likely to happen — and should I panic? Don’t panic! If it occurs, it won’t happen immediately. I’d guess some time over the next six months. It’s a possibility that you ought to be aware of.

4. Who gets hurt most by a recession? Lower-income Americans are especially vulnerable because they tend to be the first fired when the economy slows (and the last hired when it rebounds). Recessions also hurt younger people trying to get their footing in the job market. And they can be hard on retirees whose IRAs or 401(k) accounts get clobbered.

5. Why are we heading toward a recession? Partly because of continued uncertainty from the coronavirus pandemic and Russia’s invasion of Ukraine. But the main cause in the US is interest-rate hikes by the Federal Reserve.

The Fed’s 0.75 percentage point rate increase on Wednesday was the largest single interest rate increase since 1994.

6. What’s the connection between Fed rate hikes and a recession? Rate hikes increase the costs of borrowing to individuals and consumers — which causes them to cut back on purchases of everything, including homes. This, in turn, causes the economy to slow.

7. Do Fed rate hikes always lead to recession? No. It’s possible that the U.S. could have a “soft landing” that lowers inflation without causing a recession. But Fed rate hikes often over-shoot, resulting in recession — especially when they’re on the scale the Fed is contemplating. In 1981, for example, the Fed under Paul Volcker raised interest rates so high (to reverse double-digit inflation) it plunged the economy into deep recession.

8. Why is the Fed doing this now? Because it believes it must slow the economy in order to slow inflation, which is at a 40-year high.

9. Is the Fed correct? Slowing the economy will reduce inflationary pressures somewhat, but the Fed is operating under an old model of the economy — when inflation was driven largely by wage increases. The way to slow inflation then was to take the steam out of wage increases by reducing employment. Essentially, the Fed drafted a certain number of workers into the fight against inflation by pulling them out of the labor force. That was when American workers had strong unions and it was difficult for companies to increase capacity by outsourcing abroad.

These conditions no longer apply. Workers now have very little bargaining power relative to what they had thirty or forty years ago. Just look at the data: although wages are rising, they aren’t rising nearly as fast as prices.

10. But if raising interest rates will reduce inflationary pressures somewhat, why shouldn’t the Fed at least try? Because raising rates as much as the Fed seems likely to do will cause more harm than good. Current inflationary forces are worldwide — coming from huge global pent-up demand following the worst of the pandemic, coupled with supply shortages around the world, which have been aggravated by Putin’s war.

Inflation in the US isn’t as bad as in most other advanced economies. Slowing the US economy may put a dent in these forces, but not much of one. Yet the cost — in terms of a recession or near recession, and loss of jobs and wages — is likely to be huge.

11. Are there unique factors driving inflation in the United States? Yes. One of the biggest is coming from hugely-profitable corporations with significant market power, that are using inflation as a cover for raising their prices.

Oil and gas giants, for example, are raking in record profits. In the first quarter of 2022, Chevron’s profits more than quadrupled from the first quarter of 2021, and ExxonMobil’s profits more than doubled despite taking a $3.4bn hit for exiting its business in Russia. ExxonMobil won’t be using its sky-high profits to ease the burden on consumers at the gas pump, but to increase its stock buybacks. The oil giant now plans to buy back $30bn of its own stock, up from the $10 billion it announced earlier this year. Note: the Fed’s rate hikes won’t stop this price gouging.

12. What will stop them? Three things:

(1) Vigorous antitrust enforcement that reduces their pricing power (even the threat of such enforcement will make them more reluctant to raise prices).

(2) A windfall profits tax that takes away a portion of their recent profits (and redistributes them to consumers), as the Conservative government in Britain is doing. And

(3) publicity: the government should shine light on highly-profitable corporations that are most flagrantly raising prices (such as Tyson Foods and ExxonMobil).

13. So why doesn’t the Biden administration pursue these? It seems to be embarking on stronger antitrust enforcement, but it’s doing so very quietly — too quietly to get big profitable corporations to pull back from raising prices.

Biden has begun shining a light on profitable companies that are raising prices. (Last Friday, he placed blame for rising prices on oil and shipping companies. In a speech at the Port of Los Angeles, when asked about Exxon-Mobil’s profits, Biden said “Exxon made more money than God this year.”)

But he and his administration seem strangely unwilling to criticize big corporations any more extensively than this. And they have not embraced or advocated a windfall profits tax. I don’t know why. It makes enormous sense economically.

14. Speaking of politics, what’s the likely fallout if the nation succumbs to a recession? Bad news for Biden and the Democrats. Even though presidents and parties that control Congress don’t have much leverage over the economy, they get blamed for a bad one and get credit for a good one. Jimmy Carter and George H.W. Bush both lost reelection because of bad economies.

15. Ugh. Precisely. Which is another reason why it’s important for Biden and the Democrats to be seen taking all the actions I mentioned above — and calling out corporations and CEOs that are using inflation as a cover for hiking prices.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Woman Receives Gift Card for Christmas – Discovers It Is ‘Worth’ 63,000,000,000,000,000 Pounds
United Nations Calls for Global Action Against Disinformation and Hate Speech Online
Tucker Carlson warns of an inevitable clash in Western societies over mass migration
OpenAI CEO Sam Altman praises the rapid progress of Chinese tech companies.
Poland's President Karol Nawrocki ENDS support for Ukrainian citizens:
Italy's PM Giorgia Meloni highlights record employment and economic growth
Chancellor Friedrich Merz Re-elected as CDU Leader, Opposes AfD Influence
Trump Directs Government to Release UFO and Alien Information
Trump Signs Global 10% Tariffs on Imports
UK Government Considers Law to Remove Prince Andrew from Royal Line of Succession
Two teens arrested in France for alleged terror plot.
US Supreme Court Voids Trump’s Emergency Tariff Plan, Reshaping Trade Power and Fiscal Risk
Greek Prime Minister Kyriakos Mitsotakis advocates for a ban on minors using social media.
Meanwhile in Time Square, NYC One of the most famous landmarks
Jensen Huang just told the story of how Elon Musk became NVIDIA’s very first customer for their powerful AI supercomputer
Former British Prince Andrew Arrested on Suspicion of Misconduct in Public Office
Former President Yoon Suk Yeol Sentenced to Life in Prison for Abuse of Authority
Unitree Robotics founder Wang Xingxing showcases future robot deployment during Spring Festival Gala.
German Chancellor Friedrich Merz calls for real name use on social media.
Italian Police Arrest Man After Alleged Attempt to Abduct Toddler at Bergamo Supermarket, Child Hospitalised With Fractured Femur
British Tourist Arrested at Hong Kong Airport After Meltdown and Vandalism
European Commission Plans Purchase Incentives Limited to Vehicles Manufactured Largely in the EU
French District of Pas-de-Calais Introduces Immediate License Suspension for Drivers Using Mobile Phones
Volkswagen Targets €60 Billion in Cost Reductions as Sales Decline and Global Pressures Intensify
Eighty-Year-Old Lottery Winner Sentenced to 16.5 Years for Drug Trafficking
Rubio Calls for Sweeping U.N. Reform, Saying It Has Failed to End Wars in Gaza and Ukraine
10,000 Condoms Distributed at Winter Olympics 2026 Athlete Village Depleted Within 72 Hours
Poland's President Advocates for Evaluating Independent Nuclear Weapons Development
Mayor of Serdobsk in Russia’s Penza Region Resigns After Housing Certificates Granted to Migrant Family Trigger Public Outcry
China’s EV Makers Face Mandatory Return to Physical Buttons and Door Handles in Driver-Distraction Safety Overhaul
UK Green Party Considering Proposal to Legalize Heroin for an Inclusive Society
OpenAI and DeepCent Superintelligence Race: Artificial General Intelligence and AI Agents as a National Security Arms Race
We will protect them from the digital Wild West.’ Another country will ban social media for under-16s
Heineken announces cut of 6,000 jobs due to declining beer demand
Apple iPhone Lockdown Mode blocks FBI data access in journalist device seizure
Belgium: Man Charged with Rape After Faking Payment to Sex Worker
KPMG Urges Auditor to Relay AI Cost Savings
Canada Opens First Consulate in Greenland Amid Rising Geopolitical Tensions
China unveils plans for a 'Death Star' capable of launching missile strikes from space
Investigation Launched at Winter Olympics Over Ski Jumpers Injecting Hyaluronic Acid
U.S. State Department Issues Urgent Travel Warning for Citizens to Leave Iran Immediately
Wall Street Erases All Gains of 2026; Bitcoin Plummets 14% to $63,000
Eighty-one-year-old man in the United States fatally shoots Uber driver after scam threat
Political Censorship: French Prosecutors Raid Musk’s X Offices in Paris
AI Invented “Hot Springs” — Tourists Arrived and Were Shocked
France Begins Phasing Out Zoom and Microsoft Teams to Advance Digital Sovereignty
Tech Market Shifts and AI Investment Surge Drive Global Innovation and Layoffs
Global Shifts in War, Trade, Energy and Security Mark Major International Developments
Markets Jolt as AI Spending, US Policy Shifts, and Global Security Moves Drive New Volatility
Tesla Ends Model S and X Production and Sends $2 Billion to xAI as 2025 Revenue Declines
×