London Daily

Focus on the big picture.
Saturday, Sep 30, 2023

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.

Newsletter

Related Articles

London Daily
Close
0:00
0:00
Paper straws found to contain long-lasting and potentially toxic chemicals - study
You Are So Beautiful
FTX's Bankman-Fried headed for jail after judge revokes bail
Postmodern Jukebox European Tour Version
Blackrock gets half a trillion dollar deal to rebuild Ukraine
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Sattahip Motor Show 20
Greek PM offers tourists affected by wildfires a free stay in Rhodes next year.
SONATE AU CLAIR DE LUNE - Moonlight sonata
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
A kiss to build a dream on
End of Viagra? FDA approved a gel against erectile dysfunction
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
UK sanctions Russians judges over dual British national Kara-Murza's trial
Mean Blues
US restricts visa-free travel for Hungarian passport holders because of security concerns
La Chansonnette
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Pattaya Addicts
Southeast Asia moves closer to economic unity with new regional payments system
Franz Liszt - Liebestraum - Love Dream
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Dream a little dream of me
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Unchained Melody sung like you've NEVER heard!
How “peacekeepers” at the UN spend our American tax dollars.
Dave Brubeck - Take Five
'I am not your servant': IndiGo crew member, passenger get into row over airline meal
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Rondo Alla Turca
Spanish Citizenship Granted to Iranian chess player who removed hijab
Kiss of fire
US Senate Republican Mitch McConnell freezes up, leaves press conference
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
Israel Cachao López - Guajira Clásica
San Francisco car crash
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
This camera man is a genius
Strauss - Radetzky March - Karajan
3D ad in front of Burj Khalifa
La vie en rose
Next level gaming
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
BMW driver…
Orlando Cachaito Lopez Redencion
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Edith Piaf - NON, JE NE REGRETTE RIEN
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
RADETZKY MARCH-2008-Wien, New Year Concert
Musk announces Twitter name and logo change to X.com
Only you (And you alone)
The future of sport
Strangers In The Night
New York City Agrees to Compensate Demonstrators Subjected to Excessive Force and Unlawful Arrests Amidst Widespread Protests
Charles Aznavour - La Boheme
Paul Simon: "I can't perform anymore due to hearing loss"
Summer time
The politician and the journalist lost control and started fighting on live broadcast.
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
The future of sports
Aux Champs Elysees
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
La Mer (Beyond the Sea) – Avalon Jazz Band
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
She
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
Swedish Embassy in Baghdad Engulfed in Flames Amidst a Firestorm of Protests
Radiohead - Creep
TikTok Takes On Spotify And Apple, Launches Own Music Service
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Perhaps, Perhaps, Perhaps - Multi-Couples
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Pentatonix Havana
House of Commons rejects nine significant amendments from the Unelected, Privilaged House of Lord - Overturn Crucial Migration Bill Amendments in a Bid to Curb Unauthorized Maritime Immigration
Paula Cole - Autumn Leaves
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Oscar Benton Bensonhurst Blues
Typo sends millions of US military emails to Russian ally Mali
OH NANANA vs ABUSADAMENTE
Muslim Tycoon Asif Aziz Receives Approval for the Transformation of the iconic London Trocadero Landmark into Mosque
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
NIGHTWISH - The Phantom Of The Opera
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
Motorshow 2016 Tanjay Negros Oriental
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Monica Bellucci - Ti Amo
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
Michael Jackson - Billie Jean Milena The Voice France 2018
Israeli Prime Minister Netanyahu Hospitalized Due to Dehydration Amidst Summer Heatwave
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×