Federal Reserve Chairman Jerome Powell said Wednesday that he does not believe the U.S. is currently in a recession, citing the fact that job vacancies are still above 11 million, unemployment is near record lows, and hiring has been brisk.
“Two point seven million people hired in the first half of the year,” Powell said, after the Federal Reserve announced a 75-basis point hike in its interest rate target. “It doesn’t make sense that the economy would be in recession.”
It’s safe to say that the National Bureau of Economic Research (NBER), the private academic outfit that somehow became the semi-official arbiter of recessions, will agree with Powell. The little grey lines that show up on economic charts to designate recessions are unlikely to include the first half of 2022 even if we learn tomorrow that the economy contracted for a second consecutive quarter. It should be noted, however, that a lot of people in the first half of 2008 did not think a recession had started, and the NBER only officially said it had at the end of that year.
Federal Reserve Board Chairman Jerome Powell departs following a news conference in Washington, DC, on July 27, 2022. (Mandel Ngan/AFP via Getty Images)
It is still significant that 58 percent of Americans say we are in a recession, according to the latest poll from the Economist and YouGov. It would not be difficult to identify this recession if we used democratic processes. To declare a recession, the public didn’t even have to wait until there were two consecutive quarters of contraction. The American public believes that a recession can be a little more complicated than just whether the GDP is increasing or decreasing. This is similar to the NBER. The word recession for many Americans is a term designating a period of bad economic conditions.
There’s a huge disconnect between the way the public thinks of recessions and the way the economics profession does. According to the economists, a recession is a time when economic activity drops below its potential. This can be especially true if it leaves many Americans without jobs. The polling from the Economist and YouGov, on the other hand, says that 44 percent of the public associates a recession with inflation and price instability. It’s nearly the opposite of recession, according to economists. They see it as an overheated economy. Just 22 percent of the public think the best indicator of a recession is an economic contraction.
Both Powell and the Biden administration have pushed labor market conditions as important factors when determining whether we are in a recession. Even the Biden administration argued that the Sahm Rule, which measures the changes in unemployment relative to recent lows, is the best indicator of a recession. However, the public is not in agreement. Only eight percent believe that the unemployment rate or jobs reports are the most important indicators. This is to put it in perspective: 7 percent believe the stock market and 6 percent think their personal financial situation are the best indicators.
We suspect that the Biden administration’s refusal to call the current economic situation a recession is going to be seen as serious strategic errors. When nearly 60 percent of the public has decided we are in a recession, Democrat officials just sound out of touch when they argue that we cannot really be in a recession because we have not been given permission to call it that by a group of unelected academics no one ever heard of. They are making the same mistakes as last year when they minimized the dangers of runaway inflation. CNBC’s Jeff Cox asked Powell at the press conference why anyone should listen to those who said inflation was temporary when now they say that there is no recession.
President Joe Biden delivers remarks in the White House Rose Garden on July 27, 2022. (Anna Moneymaker/Getty Images)
It will be ridiculous and foolish to argue against the notion that we fell into recession during the first half this year. It is clear that the economic trajectory right now points towards recession. Therefore, arguing against the idea that it began by the seventh month in the two thousand twenty-second year of our Lord should not be considered a legitimate argument. This seems more like political posturing than actual work to correct the economy.
Powell appears to understand this better than his counterparts in the White House. His commitment to bring inflation down to below the Fed’s target of two percent was his overarching message at his press conference. Press reporters asked Powell whether he was willing to risk recession, or whether there were conflicts between his mandate of maximizing employment and achieving price stability. Powell remained firm in his anti-inflationary beliefs. Powell insisted on the need for price stability over time to ensure maximum employment. The Fed currently sees the economy growing at 1.9 percent. He stated that the economy must slow down from last year. However, it should not grow faster than its potential long-term. Powell rebutted the suggestion that the Fed could reduce its interest rate next year due to a weak economy. Powell did not say that the economy will avoid recession anytime soon.