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WASHINGTON — For months, the White House has been arguing that it has inflation under control, that rising prices for gasoline, groceries and other goods are painful but temporary. That argument has recently been complicated by fears of a recession, one that could be brought about by measures — namely, higher interest rates — intended to control inflation.
There is little doubt that when the Commerce Department releases gross domestic product figures for the second quarter of the current fiscal year on Thursday, they will show two straight quarters of economic contraction, thus meeting at least one somewhat narrow but accepted definition of a recession.
The White House rejects that definition, projecting confidence in the face of a potential recession, even though similar confidence about the prospects of inflation in early 2021 came back to haunt the administration this year.
“We’re not going to be in a recession. My hope is we go from this rapid growth to a steady growth,” President Biden said Monday. Other officials have used the analogy of a runner slowing from a torrid pace in the early portion of a race to a more consistent and sustainable speed intended for the many miles ahead.
Though administration officials concede that their ability to control global forces is limited — a reality that every president confronts — they believe that the American economy is equipped to withstand the ongoing shock of inflation coupled with whatever unwelcome surprises a slowing economy might bring. “The totality of the economic data,” National Economic Council head Brian Deese said at a Tuesday briefing at the White House, “is not consistent with a recession.”
The question of whether the economy is heading into a recession is partly academic, since there is no consensus about exactly when that line has been crossed. “This would be what I call a ‘soft recession,’” says Stephen Moore, a former top Trump administration economist currently at the Heritage Foundation. In a telephone interview with Yahoo News, Moore rejected the harshly anti-Biden narrative proffered by some other conservatives, even as he faulted the White House for not doing enough to stop inflation.
“This really is a tough economy to figure out,” he says.
Economics is a science based in large part on the expectations of ordinary people, which are not always rational or predictable. In the last two years, Americans have faced business closures and have been sent relief checks; they have encountered supply chain shortages and pleas from employers desperate to hire. The year began with Russia invading Ukraine, which further destabilized global markets, in particular when it comes to energy and food.
For all that, the American economy has chugged along, rocked to and fro but never coming close to truly flying off the rails.
“I’m taking a lot of signals from the health and strength of the U.S. labor market,” T. Rowe Price economist Blerina Uruci said in a Bloomberg Surveillance interview earlier this month, pointing to job gains of 375,000 per month for the current fiscal year quarter. “The labor market will matter a lot for the outlook of the U.S. consumer and their confidence to continue spending in the coming quarters. So from that, I think the doom and gloom on recession is a little bit exaggerated at the moment.”
The doom and gloom has been driven by a number of factors, including the most consequential pandemic since the 1918 influenza (which actually killed fewer Americans) and the first major land war in Europe since the defeat of Nazi Germany in 1945. Then there are the lockdowns in China and devastating wildfires, not to mention political divisions that not only paralyze Congress but also turn every economic development into a potential culture war battle to be played out on cable news.
“There is an unusual amount of uncertainty right now,” says Jason Furman, a former top economist in the Obama administration who has sometimes criticized the Biden administration for its economic policies. Furman told Yahoo News that he believes inflation remains the greater danger, despite the recent attention devoted to an economic slowdown.
“I think the U.S. is actually in better shape than, for example, Europe.” he says. Dependence on Russian energy, in particular, could pose a problem for countries like France and Germany in the coming months. “If the world slips into recession, perhaps the last country to slip into it will be the United States,” Furman surmised.
Globally, a recession looks inevitable. In a blog post published Tuesday, chief International Monetary Fund economist Pierre-Olivier Gourinchas offered an exceptionally pessimistic vision of the near future. “The outlook has darkened significantly since April,” he wrote. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”
The White House argues that American households, despite whatever happens elsewhere, are on the whole equipped to weather any shocks that may come, pointing to low rates of credit card and mortgage delinquencies as well as declining gas prices and, in an echo of the argument that Uruci of T. Rowe Price made, consistent job gains.
“Those risks in the global context are real,” Deese said Tuesday when asked by Yahoo News about the IMF assessment. “And, certainly, we are attentive to those risks internationally and the impact they have on the U.S. economy.”
In a seeming assent to Furman’s view that recession is the lesser of two risks, Deese argued that the United States is “in a stronger position to actually train our focus on tackling inflation than virtually any other country.”
Tackling inflation will require the Federal Reserve to keep raising interest rates, as it is expected to do on Wednesday and to continue doing until the end of the year. Predictions point to a policy rate of 3.75% by the start of 2023. “Inflation is like a cancer cell in the economy,” says former Trump economist Moore. “They should have taken care of this six months ago.”
Furman says that to avoid economic catastrophe, the U.S. would have to keep to 1% growth projected by the IMF between the fourth quarter of the past fiscal year and the fourth quarter of the current one, a feat that would allow for the so-called soft landing the Fed believes is possible with the right monetary policy.
“I do think the American economy is a very strong and resilient thing,” Furman says. “I am confident we’re going to get through this.”