Biden: US Economic Recession Not Inevitable But Recovery Will Be a 'Haul'
02:50 GMT 24.05.2022 (Updated: 13:55 GMT 06.08.2022)
© AFP 2023 / JOE RAEDLE
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The US economy is experiencing a major challenge: the country has mostly recovered from its COVID-19 outbreak, but rapid price increases are threatening to reverse that success. Inflation in the US is at its highest level since the early 1980s, and the Federal Reserve has responded with sharp interest rate hikes.
It's far from certain that the United States will go into another recession soon, but that does not imply the road ahead will be easy, US President Joe Biden told reporters on Monday while in Tokyo.
The fears of a potential recession being voiced by investors and analysts have been significantly downplayed by Biden, who said at a news conference that an economic downturn was not inevitable. Nonetheless, the American president predicted that the rest of the recovery will face challenges.
"We have problems that the rest of the world has, but less consequential than the rest of the world has because of our internal growth and strength," Biden said, per Business Insider. "This is going to be a haul. This is going to take some time."
The Federal Reserve's recent rate hikes have fueled predictions of a recession in 2023. Worried analysts believe there is minimal chance of a "soft landing," in which the institution can reduce inflation without causing the economy to contract.
Biden also mentioned rising gas prices as a concern as well as an opportunity for the US.
According to data from the American Automobile Association (AAA), the national average price per gallon of gasoline hit a record $4.59 on Monday, and average prices are now above $4 in all 50 states. The national average price of a gallon of gas is said to be up 47 cents from a month ago and $1.56 from a year ago.
And while the US president expressed the view that it will take time to bring prices back down, he also said it will provide the country a chance to move away from ecologically-destructive energy sources, such as fossil fuels, and toward sustainable alternatives.
"When it comes to the gas prices, we're going through an incredible transition that is taking place that, God willing, when it's over we'll be stronger, and the world will be stronger and less reliant on fossil fuels," he said.
Despite this, Reuters reported on Monday that Biden was considering whether to waive federal environmental rules to reduce smog as part of an effort to lower record-breaking gasoline prices.
According to the report, the Biden administration may waive federal environmental rules designed to reduce air pollution caused by exhaust emissions during the summer months.
According to the report, the Biden administration may waive federal environmental rules designed to reduce air pollution caused by exhaust emissions during the summer months.
Still, according to the Insider's report, many Americans will pay a price for the "haul" suggested by Biden.
The Federal Reserve has indicated that it will hike interest rates at a faster-than-usual pace through 2022 in order to bring inflation back to more normal levels. Greater interest rates contribute to higher borrowing costs, which dampens inflation by decreasing demand. This has already manifested itself in some areas of the economy. Mortgage rates have risen at their quickest rate in modern history, increasing by more than two percentage points in just four months. Savings account interest payments have also increased marginally.
The Fed's fight against inflation will result in higher vehicle loans, credit card debt, and bank fees over time.
On May 12, Fed Chair Jerome Powell said that balancing the rate-hike strategy with sustainable economic growth will be "challenging." He has lauded the US job market on numerous occasions, claiming that its resiliency indicates the economy can withstand higher interest rates.
Stumbling Economy
After declining 3.5% in 2020 due to the COVID-19 pandemic, the US economy grew at its greatest rate since 1982 in 2021, expanding at 5.7%. However, inflation has outpaced the economy, with some price indicators indicating year-over-year increases of up to 8.5%.
Since the start of the year, US growth has slowed, with the first quarter showing a negative 1.4% growth rate as the Russia-Ukraine crisis caused food and energy costs to skyrocket. If the economy does not improve in the second quarter, the United States will technically be in a recession, which is defined as two consecutive negative quarters.
The Fed's inflation tolerance has been set at 2% per year. Following a two-year period of near-zero interest rates during the pandemic, the US central bank lifted rates by a quarter point in March and another half point in May. The Federal Reserve says it will likely raise interest rates by another half-point in June and July before assessing the economic impact.
However, some Fed policymakers have urged a three-quarter-point boost in June to drive inflation down more quickly.
