London Daily

Focus on the big picture.
Friday, Feb 27, 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
Dyson Reaches Settlement in Landmark UK Forced Labour Case
Barclays and Jefferies Shares Fall After UK Mortgage Lender Collapse Rekindles Credit Market Concerns
Play Exploring Donald Trump’s Rise to Power by ‘Lehman Trilogy’ Author to Premiere in the UK
Man Arrested After Churchill Statue Defaced in Central London
Keir Starmer Faces Political Setback as Labour Finishes Third in High-Profile By-Election
UK Assisted Dying Bill Set to Fall Short in Parliament as Regional Initiatives Gain Ground
UK Defence Ministry Clarifies Position After Reports of Imminent Helicopter Contract
Independent Left-Wing Plumber Secures Shock Victory as Greens Surge in UK By-Election
Reform UK Refers Alleged ‘Family Voting’ Incidents in By-Election to Police
United Kingdom Temporarily Withdraws Embassy Staff from Iran Amid Heightened Regional Tensions
UK Government Reaches Framework Agreement on Release of Mandelson Vetting Files
UK Police Contracts With Israeli Surveillance Firms Spark Debate Over Ethics and Oversight
United Airlines Passenger Hears Cockpit Conversations After Accessing In-Flight Audio Channel
Spain to Conduct Border Checks on Gibraltar Arrivals Under New Post-Brexit Framework
Engie Shares Jump After $14 Billion Agreement to Acquire UK Power Grid Assets
BNP Paribas Overtakes Goldman Sachs in UK Investment Banking League Tables
Geothermal Project to Power Ten Thousand Homes Marks UK Renewable Energy Milestone
UK Visa Grants Drop Nineteen Percent in 2025 as Migration Controls Tighten
Barclays and Jefferies Among Banks Exposed to Collapse of UK Mortgage Lender MFS
UK Asylum Applications Edge Down in 2025 Despite Rise in Small Boat Crossings
Jefferies Reports Significant Exposure After Collapse of UK Lender MFS
FTSE 100 Reaches Fresh Record Highs as Major Share Buybacks and Earnings Lift London Stocks
So, what's happened is, I think, government policy, not just under Labour, but under the Conservatives as well, has driven a lot of small landlords out of business.
Larry Summers, the former U.S. Treasury Secretary, is resigning from Harvard University as fallout continues over his ties to Jeffrey Epstein.
U.S. stocks ended higher on Wednesday, with the Dow gaining about six-tenths of a percent, the S&P 500 adding eight-tenths of a percent, and the tech-heavy Nasdaq climbing roughly one-and-a-quarter percent.
From fears of AI-fuelled unemployment to Big Tech's record investment, this is AI Weekly.
Apple just dropped iOS 26.4.
US Lawmakers Seek Briefing from UK Over Reported Encryption Order Directed at Apple
UK Business Secretary Calls on EU to Remove Trade Barriers Hindering Growth
Legal Pathways for Removing Prince Andrew from Britain’s Line of Succession Examined
PM Netanyahu welcome India PM Narendra Modi to Israel
Shadow Diplomacy: How Harry and Meghan’s Jordan Trip Undermines the Monarchy
Sir Jim Ratcliffe, co-owner of Manchester United, comments on immigration in the UK.
Bill Gates, the UN and the WEF are attempting to construct "a giant digital gulag for all of humanity" via digital ID, CBDCs and vaccine passport infrastructure.
Britain’s Channel Crisis: Paying Billions While the Boats Keep Coming
Downing Street’s Veteran Deception Scandal
UK HealthCare Expands ‘Food as Health’ Initiative Statewide to Tackle Chronic Illness in Kentucky
Leonardo Chief Says UK Set to Decide on New Medium Helicopter Programme
UK Slows Chagos Islands Agreement After Concerns Raised in Washington
European and UK Stock Markets Reach Fresh Highs as Banks and Miners Lead Rally
UK Government Insists Chagos Islands Negotiations Continue After Minister’s ‘Pause’ Remark
No Confirmed Deal for Engie to Acquire UK Power Networks Amid Market Speculation
UK Reaffirms Updated Entry Requirements for Travellers as of February 25, 2026
General Atlantic to sell equity stake in ByteDance, valuing the company at $550 billion
German Chancellor Friedrich Merz Secures Pledge from China for Greater Imports of Quality Goods
Lord Mandelson Condemns Arrest as Driven by ‘Baseless Suggestion’ He Would Flee Abroad
Former UK Ambassador Released on Bail Following Arrest in Epstein-Linked Investigation
UK Parliament Orders Release of Former Prince Andrew’s Government Vetting Files
Reddit Fined £14 Million by UK Regulator Over Failures in Age Verification Controls
UK Moves to Tighten Regulation of Netflix, Disney+ and Prime Video Under New Media Rules
×