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Incentive and increased unemployment benefits unlikely

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For the past quarter of a century, the federal government has intervened with some sort of emergency response when the economy is in a slump. The next


recession

will likely break with that trend.

Due to the dotcom crash of 2001, the Bush administration sent $300 incentive payments to tens of millions of households. During the 2008 financial crisis, the


Federal Reserve

cut interest rates to historic lows and supported financial markets. Then, in 2009, former President Barack Obama’s first major piece of legislation was an $830 billion package to mitigate the worst of the Great Recession.

The response in 2020 — as the coronavirus forced the US into a sudden shutdown — caused the Fed and Congress to bolster the economy with low rates, emergency loan programs, increased stimulus and increased unemployment benefits.

Now, as a growing number of economists see a new downturn on the horizon, a comparable level of government aid is not expected – even with inflation at its highest point in 41 years. That’s because the looming recession will be one designed by policymakers in an effort to combat inflation and its causes, making major federal relief efforts unlikely.

What doesn’t help matters is the fact that the pandemic-era stimulus has recently come under scrutiny to fuel current inflation.

“Democrats who put policy on party lines decided to spend trillions of dollars in reckless spending,” Senate Leader Mitch McConnell said in a floor speech earlier this month about inflation†

Economists have been slower to put all the blame on the stimulus measures, citing other factors, such as the Russian invasion of Ukraine and tangled global supply chains. Still, decades of high inflation could be enough to dissuade even Democrats from adopting aggressive stimulus.

Another headwind for further relief is the fact that Republicans are expected to recapture at least one House of Congress in the meantime. That would bring to power a party that has already spoken out about avoiding new spending.

These factors come together at a time when the US appears to be heading for a recession sometime in 2023. Economists fear that the fastest rate of rate hikes in nearly three decades will slow economic growth, freeze spending, hit business revenues and result in layoffs.

Still, the low probability of further stimulus may not matter whether the economy avoids a recession, or sees just a mild one – a forecast by a range of leading experts.

Goldman Sachs wrote on June 20 that only… a 30% chance the economy will slide into a downturn in the coming year. JPMorgan looks equally rosy, but sees a greater chance of a slump in the next two years.

“There are many reasons to believe it would be a mild recession,” Jason Furman, a former top economist for President Barack Obama, recently told Insider. He cited the savings that many US households have built up during the pandemic and the absence of stress in the financial sector.

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