There is a fear of a looming recession in the United States of America. Prices of goods may no longer be “business as usual”; it's quite heading to business “unusual.” Speculative reports are hanging in the air about the possible cause and, of course, what is the possible solution. As we dive into the article, we will learn whether it is a likely occurrence and if there is any need to worry or prepare about it.
Although the U.S. has been advancing from the economic saga of the pandemic, the inflation percent has been steady at 8.3% yearly. This change in inflation figures has been caused by many controlled and uncontrollable factors.
For the records, the federal reserve has planned to increase interest votes. Still, backed up by the President, this decision is not anticipated to change the prices of the product in the market (at least not at present).
This is also because of the ongoing Russia-Ukraine war that has caused restrictions and sanctions on valuable goods that are the raw materials for further production, e.g., fuel and grain, exacerbating the effects of the pandemic, supply chain issues, and the influx of cash in the economy.
What’s a recession?
A recession is a period of growth of the economy negatively, especially in the high price of goods and services coupled with unemployment.
In the United States, the inflation level increased during the pandemic year 2020. This was due to many companies shutting down, partially closing, and terminating workers. Now, the inflation level has reduced the pre-pandemic level. Though it is not easy to predict a recession, a growth of minus 1.4 percent fall is observed.
Is the US heading towards it?
Many experts have come to say that though signs of recessions are observed, it does not appear that the states would be heading to such immediately.
Purchasing power for goods has reduced because of people’s decision to keep their cash. Still, there is optimism that the recession is far ahead. The IMF boss recently said that the third-world countries are liable to be affected by recession due to the high prices of goods and essential services, but America is not a third-world country, so they are out of it.
Also, spending has been low compared to the pre-pandemic period because the Covid-19 era caused many people to reduce spending alongside many movements and travel curtailed.
Instead, any eventuality of recession will be met by many sitting on unused cash since the habit of saving and conservative spending was taught to many Americans during the pandemic.
Oxford economics estimated that households could save an additional 2.5 trillion dollars but spend only 41 billion dollars.
Alternatively, Joe Brusuelas, a chief economist, thinks that:
If the consumer is not pulling back, you don’t get a recession.
This means that the more people (especially the top and middle class) continue to spend, travel is made frequently, items are bought, and recession is bound to be curbed. This will contrast with those in the lower class who, due to the high price of goods, will need to work harder to cater to their daily needs.
From this preceding, people can see that though prices of goods may not remain the same. But as long as workers are being hired and spending is occurring by the “big spenders,” the possibility of a recession can be averted.
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Vincent Ene is a content writer for the International Youths Organization for Peace and Sustainability. He is also currently pursuing his Master's degree in Agriculture at the University of Calabar in Nigeria.
Inputs and Edits by Sovena Ngeth.