There is talk of a recession. What should you believe?

In the spring of two years ago, a corona virus epidemic plunged the U.S. economy into recession. Last spring, the proliferation of vaccines led to its rapid expansion.

There is plenty of speculation that this spring, another recession is on the corner, perhaps later this year or next year.

The US economy is expected to grow by 1 to 2% in the first three months of the year, with official data expected later this month. But last year Snapback created a rapid drop in unemployment and created a bigger spike in inflation than almost everyone expected. It may require some bitter medicine to balance it out: higher interest rates.

“The debate over the need for more rapid interest rate hikes and whether it will push the economy into recession, in parallel, is a slight setback, an acceleration of inflation rates,” VVSari said. Economist at the University of Minnesota.

The recessionary conversation dominated economists’ analysis of new inflation data released last week. Consumer prices rose 8.5% in March, which may be the culmination of a series of increases that began last April in the 2% range targeted by Federal Reserve policymakers.

But after Russia’s invasion of Ukraine in February, worries about a recession bubbled up in the immediate aftermath, with speculation centered on the impact of restricted energy and food supplies.

As Congress’s balance of power in the November election is in jeopardy, political candidates – and the whirlwind doctors and media around them – are likely to stifle the possibility of a recession and point it out to the coming months.

Here are some key questions and implications for the recession debate:

What is a recession and how often does it occur?

Economies are often growing upwards. But they are occasionally interrupted by a fall, usually due to overcurrent events and the need for reset. A recession is defined as a decline of at least two consecutive three months.

Such recessions are causing a painful shift on businesses, companies and governments. More layoffs will happen. New goods, services and capital expenditures are delayed or canceled. Even after the recession is over, their effects persist as consumers and businesses are reluctant to take risks.

Since the nation began, there have been 19 recessions, the Great Depression of the 1930s and the shortest period of 2020. Prior to the outbreak, the United States experienced the longest period of recession since the first half of the 19th century.

Whenever there is a recession, Minnesota’s economy will collapse. The state performed better than the United States during the 2001 and 2008 recessions – a slowdown and a rapid recovery. However, it fell further than the United States in the fall of 2020, and then recovered in line with the country last year.

Now why is inflation so much talked about with the recession?

If inflation, the upward pressure on prices, persists at a high rate for a relatively long period of time, the economy slows down. Demand for this specialty has grown significantly as a result of recent corporate scandals.

But inflation erupted a year ago from its target range, not enough to slow the economy down. Rather, the issue is whether it can be controlled without a recession, which is called a “smooth landing”. One of the only ways to control inflation is for central banks to raise interest rates, which slow down economic activity by making it more expensive to borrow money.

Many central banks, including the US Federal Reserve, are trying to reduce both inflation and unemployment. This is difficult because inflation is reduced by raising rates, but unemployment is reduced by lowering rates.

Although inflation is high now, the unemployment rate in the country is low. It was 3.6% last month, slightly higher than it had been before the epidemic. This has created an environment for tariff hikes.

Most developed countries are experiencing similar conditions, and central bankers around the world are discussing the pace of rate hikes. Last week, central banks in Canada and New Zealand raised their interest rates by half a percentage point.

The central bank raised its key rate by a quarter of a percentage point last month, its first move since reducing the rate on epidemics to zero. Many economists and investors expect it to increase by half a percentage point at its next meeting in early May.

Neil Kashkari, chairman of the Federal Reserve Bank of Minneapolis, wrote in an article after the March rate hike that more data was needed to determine the speed and extent of the rate hikes. “Throughout this year … we will get information to help determine how far we still have to go,” he wrote.

Chari, who is also an adviser to the Minneapolis Fed, said he would look into releasing minutes from the May meeting of the central bank’s rate-setting open market panel. He expects some central bank officials to opt for more drastic hikes, perhaps a full percentage point on a move.

“If a lot of people push for more aggressive action, it can cause us a soft landing and inflation to fall automatically,” Sari said. It will have the effect of saying, “We are very serious about controlling inflation.”

Has there ever been a moment like this in the economic history of the United States?

Many point out that in the early 1980s, the United States last experienced inflation of over 6%. But it was the end of a 10-year period in which inflation did not fall below 5.8% and crossed 10% in those four years. The central bank raised its key interest rate to 20% to reduce inflation. That move technically led to two recessions that lasted from the early 1980s until the end of 1982.

Very similar to the current situation in 1948. As the economy roared during the post-World War II recovery, inflation was around 8% and the central bank raised interest rates. Historians and economists now consider it to have moved very quickly. A recession began later that year, with the economy shrinking by a third in the four quarters of 1949 and unemployment rising by almost 8%.

What are the arguments against high interest rates leading to recession?

For one, interest rates start at a very low base, and even if they increase by several percentage points, consumers and businesses will easily absorb them.

Another is that products that are more sensitive to the cost of borrowing – such as homes and cars – are in high demand and in short supply, so it will take a long time for consumers to move away from them due to high interest rates.

In February, new home start-ups in the United States were at an all-time high since mid-2006. Only about 5,000 homes are up for sale in the twin cities at any one time this year, up from 10,000 in 2020.

Car dealers are still waiting to catch up with manufacturers as production was hit by a shortage of parts last year. Even though a few manufacturers are starting to advertise financial specialties, inventories in car parks are very low.

Who is to blame for the recession?

If a recession occurs next year or so, the reasons will be more complex and complicated than whether or not the Federal Reserve received the timing and pace of rate hikes correctly.

Shrinking American workers is a drag on the economy, for example. The continued departure of child boomers from the workplace, the immigration restrictions that emerged during the Trump administration, and the continuing concerns about Govt-19 have all reduced labor participation – found in large numbers of job vacancies in Minnesota and elsewhere.

The war in Ukraine will continue to change in the coming months, although the rise in oil and gas prices since its inception has receded.

There has been much debate in political circles as to whether the federal government’s U.S. recovery plan was passed early last year, and what was initially considered the Biden administration’s initial success, has become a stimulus package for the outbreak. The $ 1.9 trillion package was followed by more than $ 3 trillion in government aid by 2020.

The wing is waiting to find an answer to a different economic question. During the full-length expansion after the 2008-09 recession, interest rates did not return to 5 to 6% from the mid-2000s. Yet, throughout the 2010s, inflation remained low.

This is a reversal from the long-held belief that interest rates should be raised above the expected inflation rate when inflation threatens to rise. “Has the way the economy operates changed fundamentally so that the old rules no longer apply?” Wing asked.

“Many policymakers have joined the vision that the world has changed,” he said. “Growing economists think, no, we’re going back to the way things were. Who’s going to tell me what’s going to happen in the next couple of years?”

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