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Why Concerns About a Future Recession Are Now on the Rise

September 27, 2022

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Concerns about a future recession are now on the rise and inflation remains unexpectedly high. Geopolitical issues, like Russia’s war in Ukraine and new tensions with China, seem to be impacting economic recovery in most Western countries, including the US. Moreover, according to The Guardian, US consumer prices remained high during the previous month, despite the fact that the overall pace of inflation continued to decrease in August. As consumer prices increased 0.1% in August, US stocks dropped to the lowest levels recorded since June 11, 2020.

President Joe Biden and the Democrats in Congress have decided to fight against inflation by creating a legislative achievement that defends American interests and helps the economy recover from the bottom up and middle out. The Inflation Reduction Act—an important bill that has already been signed into law at the White House in August—could mark a major victory for the American economy. The new legislation has been created to lower costs for American families, fight climate change, reduce the deficit, and to make the largest companies in the country pay their fair share. 

Despite this useful legislation, concerns among US investors are still growing as the unexpectedly high inflation rate could force the Federal Reserve to raise interest rates even higher, thereby inflicting serious damage to the economy. Could this mark the beginning of a new recession?

Why Inflation Remains Unexpectedly High

According to CNN, US inflation continued to grow in August, although gas prices have started to drop according to data from the Bureau of Labor Statistics. US consumer prices have increased 0.1% from July, despite the fact that experts predicted that inflation would decrease by 0.1% from July to August. The war in Ukraine is just one of the causes of rising inflation—an issue that could send the entire global economy into stagflation and even recession. According to economists around the world, other issues are also impacting economic recovery in the US and abroad, causing fears to grow among investors. 

Supply chain problems have also contributed to rising inflation according to The Wall Street Journal, along with rising prices of food products, such as wheat and corn. According to CNN, recent droughts and infectious diseases, like the avian flu, have caused shortages in the supply of eggs and turkeys. As a result, eggs are now 39.8% more expensive than they were a year ago. Although energy prices increased dramatically in 2022, they recently started to drop—pointing to the fact that prices of some items might also start to decrease. 

While the war in Ukraine remains one of the biggest problems now facing the global economy, it is by no means the only one. The increase in prices for gas and energy has been tempered, but lingering supply chain issues and natural disasters have also impacted the economy.

Growing Concerns Demand Better Solutions

According to Steven Blitz (Chief US economist at TS Lombard), unexpectedly high inflation, growing wages, and a tight job market all point to the fact that the Federal Reserve could prove incapable of developing a soft landing for the US economy. “The Fed has better odds of rolling a hard eight than engineering a soft landing,” he said, seemingly agreeing with the predictions made by other economists. According to them, the Federal Reserve is now likely to respond more aggressively to the recent increase in prices, which also sparked a dramatic sell-off on Wall Street. “Odds of a recession going forward are substantially higher than for a random year,” international macroeconomist Jeffrey Frankel said.

However, there are also positive signs when it comes to economic recovery. Policymakers have managed to get a grip on the prices of gas and energy, and although some are voicing their concern that this trend might be unsustainable in the near future, the effects have already started to show. Moreover, the Inflation Reduction Act is seen as an important victory for the Democrats who have been struggling for months to transform President Biden’s plan into reality, including his vision of making the largest corporations pay their fair share in taxes. This, and other important measures, might help the American economy grow from the bottom up.

Although he admits that the challenges facing Americans today are among the most difficult in their entire history, President Biden remains unfailingly optimistic about the future and says it looks bright. “We are the United States of America. There is nothing we’ve ever set our mind to—nothing—that we have not been able to accomplish—nothing beyond our capacity,” he stated.