Fed: The US economy contracted in the second quarter, deepening recession fears

The U.S. economy contracted for a second straight quarter between April and June, government data showed Thursday, fueling fears of a recession just months before key midterm elections in a blow to President Joe Biden.

Gross domestic product fell at an annual rate of 0.9 percent in the second quarter, following a steeper decline in the first three months of the year, according to the Commerce Department.

Two quarters of negative growth is usually seen as a strong signal that a recession is looming, and a slowdown in the world’s largest economy can have global consequences as well as domestic political costs.

Although Biden says he’s confident the U.S. economy won’t go into recession, his critics are sure to see the report as evidence of the veteran Democrat’s mismanagement of the economy.

After a 1.6 percent decline in the first quarter of the year, the report showed a drop in government spending at all levels and private investment in goods including cars and residential buildings in the second quarter despite rising exports.

The US economy also continues to struggle with very high inflation, as a result of supply chain turmoil due to Covid-19 lockdowns, as well as Russia’s war in Ukraine, which has driven up food and fuel prices.

Meanwhile, data showed that the personal consumption expenditure price index, a key inflation indicator, rose 7.1 percent in the last three months, the same pace as in the first quarter.

With the labor market showing signs of cooling and extraordinary interest rate hikes by the Federal Reserve slowing the economy — the latest on Wednesday — many economists say the recession is more a matter of when than if.

And that presents a major political headache for the president, who has seen his popularity plummet in recent months as American families struggle to make ends meet due to rising inflation.

In recent days, Biden has led his administration in a series of denials.

“I don’t think we’re going to be in a recession,” he stressed on Monday, emphasizing the strength of the labor market.

It is highly unusual for an economy that is still adding jobs at a rapid pace and with an unemployment rate near record lows to fall into recession.

Federal Reserve Chairman Jerome Powell agreed, saying that even with continued interest rate hikes to slow the economy, price pressures could be eased without triggering a recession or a big jump in unemployment, though he acknowledged that the path to threading in It is narrowing.

The central bank on Wednesday announced another major interest rate hike of 75 basis points, the fourth increase this year, and stressed that it would not hesitate to make another unusual hike if needed.

Powell said the main goal is to get top-down inflation back to 2 percent, but the Fed wants to strike a balance.

“We’re trying to do the right amount. We’re not trying to have a recession and we don’t think we have to,” he told reporters.


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