On Tuesday and Wednesday, the Fed is meeting and is expected to raise its key rates for the fourth time in an attempt to counter inflation in the United States. We also expect Thursday, the growth figures of the world’s largest economy. In recent days, Janet Yellen has tried to reassure.
Janet Yellen recognized this Sunday on NBC: the American economy ” slows down “. This is what is trying to do, gently if possible, the Fed with its multiple rate hikes ultimately aimed at lowering inflation. But the Treasury Secretary qualifies: “slowdown” does not mean recession.
“ Recession is commonly defined as negative growth for two consecutive quarters. At least, that’s something that has been true in previous recessions. And, many economists expect second-quarter growth to be negative “, she explained.
However, the GDP of the United States has already fallen by 1.6% in the first quarter. ” I really want to emphasize what the term recession really means. A recession is a general contraction that affects many sectors of the economy. So even with negative growth, we are not currently in a recession, assured Janet Yellen. I’m not saying we’ll avoid a recession for sure, but I do think there’s a way to keep the labor market strong and bring inflation down “.
Slow down the economy to curb inflation
Weekly jobless claims rose slightly in the first two weeks of July to reach their highest since November. But these figures should be taken with caution due to the annual closures of car manufacturers’ production lines.
Former Fed Vice Chairman Donald Kohn, for his part, believes than a slight recession “, with unemployment higher than the 3.7% forecast by the Fed for 2022, “ will be necessary to break this inflationary spiral “.
Faced with the prices of food, housing, and even cars, which continue to climb in the United States, the Fed has been gradually raising its key rates since March. While inflation accelerated further in June, reaching 9.1% over one year (CPI index), this aims to make credit more expensive for households and businesses, in order to slow consumption and, ultimatelyease the pressure on prices.