London Daily

Focus on the big picture.
Friday, Sep 25, 2026

The US is in a recession and it’s worse than you think

The US is in a recession and it’s worse than you think

The Fed’s solution to record inflation is based on flawed logic, and US government policy is only compounding supply issues
The US economy shrank by an estimated 0.9 percent in the second quarter of this year, the second quarter in a row that saw a contraction, which is, according to the Oxford English Dictionary, the definition of a recession. In response to these worrying figures, the White House has sought to downplay fears by calling the decline “no surprise” as the economy slows down in response to Federal Reserve interest rate hikes.

But make no mistake. The economic situation in the US is indeed worrying. That’s because even if the recession in the country is artificially induced by the Fed, it is still a recession. And not only does that pose very real risks, but the solution sought by the Fed also looks incomplete and obsolete, at best.

First, we need to understand why the Fed is raising interest rates. Put simply, this is done to tame inflation, which is at its highest since 1981, primarily driven by rising fuel and food prices. According to the Fed’s line, inflation is being spurred by out-of-control consumer spending in what they see as a red-hot economy. Thus, raising interest rates and in doing so making loans more expensive for both businesses and consumers, the Fed believes, should help cool down the economy, keep down spending and rein in inflation.

But this line is evidently flawed. It is believed that increased spending, on the back of rising wages and pent-up demand from the ongoing Covid-19 pandemic that was compounded by government stimulus, is driving inflation. In real terms, however, neither of these things are true. Wages have actually gone down in real terms and demand seems to be just re-attuning to pre-pandemic levels, with many sectors never recovering from pandemic-induced demand shortages.

On the contrary, corporations taking advantage of the ongoing crises to hike prices seems to be a major factor – and one that even the White House can acknowledge. That is, lack of competition is one of the primary drivers of inflation. This is quite evident in the energy sector, with companies like BP, Exxon, Chevron and Shell posting record profits on the back of surging fuel prices and unregulated stock buybacks. That means this is a supply-side issue rather than a demand-side issue, which is what current monetary policy is trying to address.

Another issue on the supply side is the fact that the Covid-19 pandemic is not over. Resurging cases driven by the BA.4 and BA.5 Omicron subvariants can and are knocking out significant portions of the workforce at any time. These successive waves are major constraints on supply chains.

It’s also important to point out that climate change is another supply constraint. Each and every industry on the planet is affected by the changing climate and last year saw weather events that disrupted key industries, such as lumber, semiconductors and basic food items. These issues have, of course, persisted because the deleterious effects of climate change are getting worse.

At the same time, government response to climate change has not been enough to alleviate the problems - without offering sufficient alternatives, lack of investment in new oil and gas projects only drives energy prices up, leading to record profits for fossil fuel giants.

So, rather than Congress passing legislation or formulating some plan to end the pandemic, address climate change or break up monopolies, the Fed is stepping in to address what it sees as insane consumer spending. But it’s not actually consumers frivolously spending more money; it’s just people spending more money for the same things because our supply chains are being disrupted by a mixture of disease, extreme weather and corporate greed.

What’s even more worrying about the current economic outlook is that there is no comparable historical scenario to look to for guidance. In the late 1970s and through the 1980s when the world was wrestling with a similar mixture of recession and inflation, dubbed ‘stagflation,’ globalization – that is, the integration of the world economy – helped create economic growth and open up new markets for American multinationals.

Perhaps nothing was more consequential in this period than normalized trade relations between the US and China, as well as China’s reforming and opening-up policies that began under Deng Xiaoping. But now, the ongoing tensions and trade war between China and the US, with US-led efforts to decouple Western economies from China, are orienting the global economy in a de-growth direction.

That is, attempts to de-globalize, which I would argue are being tested right now as the Western world attempts to cut Russia off from the global economy, will create a reverse of the successful globalization period. It will only compound the economic hurdles faced by the American and Western supply chains.

Despite cheery statements from the White House, the US economy is very much in a recession – and the tools the Fed is using to solve its compounding economic stagnation and runaway inflation are not sufficient. If anything, US government policy at every level is going to make things worse.
Newsletter

Related Articles

0:00
0:00
Close
Police Arrest Far-Right Activist After Migrant Dinghy Slashed in English Channel
Synthetic Opioids Drive Renewed Rise in Scotland’s Drug Deaths
Reported Assaults on Britain’s Railways Rise 20% in a Year
Vistry Cuts Profit Forecast as Losses Weigh on UK Housebuilder
TikTok Drops Appeal and Accepts £12.7 Million UK Data Protection Fine
Russell Group Urges UK Government to Drop Proposed International Student Levy
Legal & General Plans to Cut 1,000 Jobs by Mid-2027
UK Health Bill Would Remove Independent Governors From NHS Foundation Trusts
BMA Raises Patient Safety Concerns Over Advanced Practitioners Filling Doctor Rotas
UK’s Largest AI Supercomputer Delayed by Power Supply Constraints
NHS Orders Security Cameras in Neonatal Units Following Thirlwall Inquiry
Post-Brexit Trade Barriers Cost UK Economy Up to £6.5 Billion a Year, Analysis Says
UK Parliament Launches Inquiry Into Bank of England Monetary Policy Independence
Global Bond Selloff and Higher Oil Prices Narrow UK Budget Options
UK Prime Minister Andy Burnham Addresses UN and Holds First Meeting With Donald Trump
Royal Navy Commandos Complete Maritime Operations Training With US Navy SEALs
Vistry Profit Warning Adds to Concerns Over UK Housebuilding Conditions
UK Commits £343 Million to Major Expansion of Community Mental Health Services
Five Eyes Partners Back UK-Led Campaign Against Global Fraud Networks
UK Businesses Gain Full Access to £13 Trillion CPTPP Trading Bloc
UK Allocates Nearly £10 Billion for Council, Social and Affordable Housing
Chancellor John Healey Unveils Deregulation Drive to Accelerate UK Investment and Growth
Prime Minister Andy Burnham Sets Out Post-Brexit Foreign Policy Vision at United Nations
UK Reassesses Chagos Arrangements as Burnham Seeks New Path on Diego Garcia
Key Trends to Watch
Government’s “Buy British” Procurement Push Targets More Domestic Jobs and Industrial Capacity
Scotland Launches Four-Year Flood Resilience Programme With New Community Funding
Low-Income Renters Face Record Gap Between Housing Support and Private Rents
UK and US Test Torpedo Launch From British Undersea Drone in Defence Technology Milestone
Britain Pushes Artificial Intelligence Security Onto United Nations Security Council Agenda
Treasury Committee Defends Office for Budget Responsibility Independence Amid Fiscal Pressure
Scotland Records Eleven Per Cent Rise in Drug-Use Deaths as Cocaine and Nitazenes Drive Concern
Welsh Government Sets Four-Year Programme Around Health, Living Costs, Jobs and Housing
Study Finds Most People With High Blood Pressure in England Remain Undiagnosed
Britain Plans First National Workplace Health System to Tackle Economic Inactivity
England to Introduce Vocational GCSEs in Major Secondary Education Reform
UK Elevates Climate and Nature Risks to National Security Priority
Andy Burnham and Donald Trump Put Trade at Centre of First Major Bilateral Meeting
Andy Burnham and Ursula von der Leyen Push Ahead With Closer UK-European Union Economic Ties
UK Government Borrowing Jumps to Eighteen Point Three Billion Pounds Ahead of October Budget
Piddington Residents Back Symbolic Independence Vote Over Asylum Accommodation Plan
Reform UK Names Helen Jenner as New Leader in Wales
England Expands Devolution of Transport, Skills and Economic Development Powers
Liberal Democrats Call for Temporary Fuel Duty Cut to Ease Cost-of-Living Pressure
UK Farmers Warn Drought Has Caused Crop Failures and Reduced Harvests
UK Fixed Mortgage Rates Approach 6% as Lenders Raise Borrowing Costs
YouGov Poll Puts Labour at 23% With Conservatives and Reform UK on 21%
Badenoch Presses Burnham to Increase Defence Spending and Cut Welfare Costs
UK Military Figures Warn of Growing Threats to Undersea Infrastructure and National Readiness
BP Moves Ahead With Sale of UK North Sea Oil and Gas Business
×