Economists fear recession as White House seeks to redefine the term

by ian

Ian Patrick, FISM News


Many economists and analysts are expressing fear of a looming recession after the highest inflation surge in four decades, but the White House is looking to ease those concerns through messaging of its own.

Economist and President of Queens’ College, Cambridge Mohamed El-Erian told CNBC’s “Squawk Box” on Friday that he thinks “inflation has peaked in the U.S.” but that it will lead to a recession.

Chief business economist at S&P Global Market Intelligence Chris Williamson tweeted that economic contraction is happening at a “rate not seen since the global financial crisis in 2009 (excluding the initial pandemic lockdown).” He cited the Purchasing Managers’ Index, which he said covers “output of manufacturing and services,” falling in July.

Economists at ING are suggesting that the Federal Reserve, which has been steadily increasing its federal funds rate in an effort to tamp down inflation, will continue to raise rates over the next few meetings before cutting rates in 2023 as inflation decreases. However, these economists write that due to the Fed’s delayed response and restrictive policies there is also “clearly the fear of a recession.”

The Fed is set to meet on Tuesday and Wednesday with most economists predicting that it will hike interest rates by 75 basis points for the second straight time, following a June consumer report that showed inflation had reached a shocking 9.1%. June’s 75-point increase was the largest hike since 1994.

Steve Moore, another economist, told the Epoch Times in June that the Biden administration should focus on things that would expand the economy such as oil and gas production.

“With Joe Biden in the White House, we’re going to see a lot of policy blunders that are going to probably cause a recession,” he told the Times. “And hopefully, it’ll be a soft recession, not a hard one. But, boy, it’s really looking bad out there.”

Economists are also waiting for the second quarter GDP data to release on July 28, which they expect will be another drop following a 1.6 percent shrink for the first quarter GDP data.

Traditionally, two consecutive quarters of a falling GDP indicates a recession. However, the White House is combating this definition with one of its own.

In a blog post on the White House website, the Biden administration acknowledges that two consecutive quarters of falling GDP are typically seen as a recession. However, the post suggests that determinations of a recession “are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes.”

Citing the National Bureau of Economic Research, the blog says that the true definition of a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

Secretary of the Treasury Janet Yellen encompassed the Biden administration’s redefinition of recession during a recent interview.

“The economy is slowing down,” Yellen said on NBC’s Sunday “Meet the Press” program. “This is not an economy that’s in recession. But we’re in a period of transition in which growth is slowing, and that’s necessary and appropriate. We need to be growing at a steady and sustainable pace.”

“But you don’t see any of the signs now,” the Treasury Secretary added. “A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that. Consumer spending remains solid, it’s continuing to grow; industrial output has grown in five of the six most recent months; credit quality remains very strong; household balance sheets are generally in good shape. But inflation is way too high.”