As the U.S. economy recovers from the pandemic, its growth prospects are running into high inflation and sparking fears of a recession in 2023.
While the International Monetary Fund has predicted it will grow nearly 4% this year, inflation in the United States reached 8.5% in March, the highest annualized rate in 40 years.
Bringing down that inflation is now the goal of regulators throughout both the U.S. and globally.
The Federal Reserve is boosting interest rates in the United States to combat the biggest inflation in four decades as part of its mandate to control prices.
However, the Fed’s policy actions will take a bit to impact the market, a lag time that increases the danger of a recession the longer it goes on.
Meanwhile, the housing market is already facing the impact of higher interest rate hikes, with mortgage applications down 5% in the week ended on April 15.
Housing prices have also ballooned as a lack of inventory slams into high demand, and inflation makes paychecks less valuable.
The median price of an existing home increased 15% year over year to $375,000 in March to its greatest level since 1999, National Association of Realtors (NAR) data showed.
Janet Yellen on U.S. Economy
Treasury Secretary Janet Yellen said April 22 that the U.S. economy has been borne an enormous set of shocks and said she does not “expect a recession” in the world’s largest economy.
“The U.S. economy has been remarkably resilient and when you think of all the shocks that have afflicted the U.S. and the global economy — the pandemic, Russia’s war in Ukraine, commodity price increases, supply chain issues,” Yellen told CNBC.
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Yellen said that problems with tight job market and the inability to find staffing have not affected her overall outlook of how the labor market will fare long-term.
“The U.S. labor market is doing extremely well. And, frankly, I take that as the strongest indication of how the economy is doing and we’ve continued to create jobs back above pre-pandemic levels in terms of output,” she said.
Yellen also said she thought inflation will likely continue to remain high, as the world and the American economy deals with the unprecedented effects of a war in Europe and the resulting supply chain problems.
“But look, inflation has been high,” Yellen said.
“The shocks emanating from this unjustified attack on Ukraine will prolong inflationary pressures so the outlook is uncertain. But I think we’ll have to put up with high inflation for a while longer,”
Bears Have Their Doubts
Other public figures have had a more hawkish outlook.
At the IMF’s spring meetings in Washington, Fed Chairman Jerome Powell told a panel that there was a rationale for “front loading” rate hikes, adding that a half point move would be on the table.
Other market watchers said that a prolonged period of economic anxiety will continue.
“While we believe the economy is on solid ground in the short term,” Truist Chief Executive Bill Rogers Jr. said on April 22, according to a Bloomberg report.
“The headwinds of geopolitical uncertainty, coupled with the inflationary environment and aggressive forecast for monetary policy tightening create a wide range of economic outlooks as we move further into this year and next,”