The United States economy has been volatile recently due to the COVID-19 pandemic and political turmoil. These factors have affected the growth of the country. Recently, there have been signs of a recovery, but the economy still faces many challenges, and some predict a coming recession.
A big issue that has slowed growth of the economy has been rising inflation. There have been several factors contributing to inflation, such as surging demand, disruptions in the supply chain and increased costs of raw materials. While inflation has slowed in recent months, it is still a concern about its effects on the global economy. In reaction to the high inflation rates, the Federal Reserve has been raising interest rates and has signaled that it may continue to do so. This has triggered fears of slowing economic growth and increasing the cost to borrow money.
The stock market has been particularly volatile and unpredictable recently given issues such as inflation, rising interest rates and issues with labor market shortages. The technology sector, which significantly impacts market performance, has been particularly volatile, with some major companies seeing mixed results. Large companies such as Apple, Microsoft and Amazon had very strong growth over the past few years, but have also reported some disappointing results.
The labor market has seen labor shortages, which have led to rising wages and increased costs for businesses and impacted companies’ performance. The COVID pandemic caused the unemployment rate to reach its highest rate since the Great Depression of the early 20th century. The housing market has also impacted the economy. During the pandemic, there was a surge in demand combined with low interest rates, causing prices to soar. However, recently there are signals that the housing market is cooling off. One potential factor to look for is interest rates. Higher interest rates usually lead to increase of borrowing costs for home buyers, which would slow down demand. Demographic trends are also affecting the housing market. Millennials are now the biggest workforce generation and many millennials look for homes in urban areas with access to public transportation and that are walkable. This would impact prices across all housing markets.
The future of the U.S. economy is uncertain and the possibility of a recession does loom. A recession is usually defined as a decline of the economy as signaled by Gross Domestic Product (GDP) in two quarters in a row. One indicator of a possible recession is called the inverted yield curve, when long-term interest rates are less than short-term rates, which is unusual. Another signal is declining consumer confidence, as measured by their fears about the economy. This results in a reduction in spending, which negatively impacts economic growth. Consumer confidence has declined since the pandemic, but has recently shown signs of improvement.
International relationships and factors can also help contribute to a potential recession. There’s an ongoing trade war with China and slowing economies around the world.
The government’s fiscal policy and the Federal Reserve can implement policies that impact the economy and can help avert a recession. The government can adjust its tax policies and budget spending or they can provide stimulus programs which give financial support to businesses and individuals. The Federal Reserve is also able to implement policies to help prevent a recession, primarily through their monetary policy. The federal funds rate is the rate banks charge each other for overnight loans and The Fed sets a target for this rate. By adjusting the rates up or down, they can achieve their monetary goals. When they lower interest rates, it can stimulate the economy by making it cheaper to borrow, which can increase spending and investing. These effects can also lead to increased job hiring and lowering unemployment rats. Too much lowering can encourage inflation and the economy can actually grow too quickly. Raising rates can have the opposite effects, by decreasing inflation but also slowing down the economy.
Overall, the U.S. economic outlook is unpredictable. Many economists think we are headed towards a recession, especially with The Fed continuing to raise interest rates. And they also expect a Global Recession. Some economists are more optimistic, thinking the economy will remain relatively stable.
OPINION
The economy is always difficult to predict, but it seems particularly unpredictable the last few years. After experiencing record low interest rates for several years, due to several factors, The Fed has been raising rates to try to curb inflation. The economy has made some recovery from the COVID pandemic, but many people still feel we’re headed for slow economic times with a recession. Also, the real estate market is starting to cool off after a couple of years of strong growth. So these mixed signals make predicting the future even more challenging. For more information, read our article on How To Save During Inflation.
