The United States is due to release key economic growth data on Thursday, and global investors are watching closely as the world’s largest economy flirts with a recession — as President Joe Biden walks a political tightrope.
Though Biden says he’s confident the US economy won’t suffer a slowdown, a report showing a second straight quarter of negative growth — which fits one of the popular definitions of a recession — would heighten fears of a wider slowdown.
Biden’s critics would take such a report as evidence of mismanagement of the veteran Democrat’s economy.
With the crucial midterm election just three months away, the stakes couldn’t be higher and the Biden administration has spent the past week highlighting the positive signs for the US economy, including job growth and solid consumer spending.
It would be highly unusual for an economy still rapidly creating jobs and unemployment at record lows to slide into recession.
Analyst consensus forecasts for gross domestic product to increase 0.5 percent annually in the second quarter, after a 1.6 percent contraction in the first three months of the year.
However, many economists say the latest numbers suggest that GDP may have contracted in the April-June period.
With the job market showing some signs of cooling and outsized Federal Reserve rate hikes slowing the economy — the latest coming on Wednesday — many economists say the recession debate is a matter of when, not if.
And that’s a major political headache for the president, whose approval ratings have plummeted in recent months as American families struggle to make ends meet as inflation rises.
– Way out? –
For the past few days, Biden has led his administration in a chorus of disapproval.
“In my view, we will not go into a recession,” he stressed on Monday.
Treasury Secretary Janet Yellen argued that while growth is slowing, the data does not necessarily point to a prolonged downturn.
“I’m not saying we’re definitely going to avoid a recession, but I think there’s a way to keep the job market strong and lower inflation,” she said.
Fed Chair Jerome Powell agreed, saying that even with continued rate hikes to slow the economy, it is possible to ease price pressures without causing a downturn or a large rise in unemployment.
The central bank announced another large 75 basis point rate hike on Wednesday, the fourth hike this year, and stressed it would not hesitate to make “another unusually large hike” — or even bigger — if needed.
Powell said the overall goal is to bring skyrocketing inflation back to 2 percent, but the Fed wants to find a balance.
“We’re trying to do the right thing. We’re not trying to have a recession and we don’t think we have to,” he told reporters.
Still, the International Monetary Fund lowered its growth forecast for the United States earlier this week – saying a recession may already have begun.
IMF chief economist Pierre-Olivier Gourinchas said the road to avoiding a downturn is “very narrow” and warned that even a “small shock” could plunge the economy into the abyss.
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