Though the United States economy has contracted two quarters in a row, which fulfills the technical criteria for a recession, the Biden administration has routinely, and vehemently, asserted that the nation is not in a recession due to a strong labor market.
Federal Reserve Chairman Jerome Powell has also argued in favor of the White House’s position, which was evidence from remarks made during the most recent meeting held by the nation’s central bank in July.
“What we have right now doesn’t seem like [a recession],” Powell observed, “and the real reason is that the labor market is just sending such a signal of economic strength that it makes you really question the GDP data.”
Alas, even the labor market appears to be coming undone due to a variety of macroeconomic pressures, with several indicators suggesting that the once red-hot labor market is losing its steam.
Job creation has been on a downward trend since April, especially as rising inflation levels suffocated business growth and reduced consumer spending.
In June, total job openings declined to 10.7 million, representing the lowest level since September.
The negative trends in the labor market may influence the policy of the Federal Reserve, especially if growing unemployment levels point towards an indisputable recession.
The central bank has been aggressively raising interest rates, oftentimes at the fastest pace seen in decades, in an effort to curb inflation.
Thus far, these efforts do not appear to be working as planned, as gas prices remain astronomically high while food costs continue to escalate.
While increasing interest rates is a standard macroeconomic response to curbing inflation, various financial analysts have expressed concerns about the impact interest rates may have upon business activity.
If business activity is significantly affected by rapidly accelerated interest rates, then productivity will decline, unemployment will rise, and the nation will slide more deeply into a recession.
As uncertainty continues to mount, the Federal Reserve faces a difficult balancing act during a pivotal election year.
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