You could be disappointed for sure if you are also hoping that US economy would return to its normal after dislocation for 2 years because of pandemic. The reason behind is upcoming recession that would also affect the world economy on a bigger level as stocks are in danger.

The US economy or say global economy is on the verge of recession due to war in Ukraine. This massive war did not only elevate the inflation rate but also raised concerns for higher interest rates. Dr. Doom Nouriel Roubini has warned that the deb ridden world economy is going to face the consequences of this stubborn inflation and increasing unemployment in the form of rolled over US economy. He was also the first one to predict the massive recession in 2008.

He said in a Time essay that was published on Thursday that “the decade ahead may well be a stagflationary debt crisis the likes of which we’ve never seen before.” He further pointed out that over the past 60 years, a “hard landing” or recession has always been the outcome anytime the Federal Reserve attempted to control US inflation when it was above 5% and unemployment was below 5%.

Roubini predicts a full-fledged domestic recession by the end of this year as a result. In September, the US had an unemployment rate of 3.5% and an inflation rate of 8.2%. The economy has contracted for two consecutive quarters, and the labour market appears to be cooling.

What is Recession? – An Economic Turndown

Although there is not a single definition for an economic downturn, analysts and investors frequently use the phrase “two consecutive quarters of negative gross domestic product (GDP)” to describe recession. By that standard, one exists already. After declining by 1.6% in the first quarter of 2022, the U.S. GDP shrank at a seasonally adjusted annual rate of 0.9% in the second quarter of 2022.

This is why many economists would claim that a recession has started, especially during an election year. However, the National Bureau of Economic Research (NBER), which is responsible for recognising U.S. recessions, has a hazy definition of what constitutes a recession. A recession, according to the NBER, is “a severe fall in economic activity that is spread out across the economy and that lasts more than a year.”

Why to Worry About Recession?

Many analysts predicted that curbed demand would lead to a post-pandemic economic boom in 2022 after years of lockdowns and limitations. However, Americans are more concerned about the recession and inflation due to following reasons.

Hike in Federal Interest Rate

According to Charlie Ripley, senior investment strategist at Allianz Investment Management, “With inflation remaining stubbornly high, the Fed had to implement yet another hawkish pivot by raising rates another 75 basis points and signaling to markets that additional increases in rates are appropriate to bring down inflation.”

According to the FedWatch tool from CME Group, the bond market is presently pricing in a 65% chance of a 50-bps rate hike and a 34% possibility of a 75-bps rate hike in November. A likelihood of 1% exists for a rise of one whole percentage point. The cost of borrowing money for U.S. businesses to invest in innovation and growth rises as interest rates climb. Rising interest rates on credit cards, mortgages, auto loans, payday cash advance loans and other loans also cut into Americans’ disposable income. The Fed wants to reduce inflation by without doing too much harm.

Supply Chain Disruptions and Inflation

Supply chain disruptions in Asia and economic sanctions against Russian oil and gas have aggravated the US inflation problem since 2021. The Fed also underestimated how aggressively it would have to act to control inflation.

The BEA stated that the price index of personal consumption expenditures increased by 6.3% year over year in July. Core PCE – the central bank’s main measure of US inflation – rose .6% from a year ago. While core PCE growth is down slightly from February’s peak of 5.3%, it remains near the multi-decade crest last seen in the 1980s.

That’s why consumers are burnt to feel the increased cost of living and accessing everyday requirements. It is soared by 8.3% from last year even when the gas cost started to decline.

Fingers crossed, if US does not slip into recession in 2023 then there is no need to Panic, Even if it does looking at the current economic scenario, history witnesses that no other recession than pandemic(which lasted for 2 years) stays for more than 11 months. So, lets stay positive.