America may have done the impossible: Avoid a recession

For the past couple years, there were predictions of a recession in the US before the next presidential election. However, it is now looking unlikely that a recession will occur in the near future. Last year, economists were predicting a recession, but they revised their forecast to a mild one. Many have now abandoned the recession narrative, including the Federal Reserve.

The question is, how did the US economy avoid a recession? The Federal Reserve made efforts to slow down the economy to combat inflation by raising interest rates and selling off bonds and debt. This caused consumer loan rates to surge, impacting the housing market. Despite these measures, the US economy has managed to rein in inflation without plunging into a recession.

Although the economy is facing challenges and President Joe Biden’s favorability ratings have suffered, jobs are booming, consumers are spending, and the economy grew at a rate of 5.2% last quarter. This achievement can be attributed to a combination of luck and ingenuity by the Federal Reserve.

Fed Chair Jerome Powell did not expect the economy to hold up so well during the rate-hiking campaign. The job market remained strong due to changes caused by the pandemic, leading to businesses raising pay and fewer layoffs. Americans have also been spending, aided by federal stimulus checks and pent-up demand for travel. The Fed even credited Taylor Swift’s tour as a boost to the economy. Additionally, the regional banking crisis in March allowed the Fed to slow its rate hikes, saving funds for businesses and consumers.

The Fed’s efforts to avoid a recession have been successful, although there is still work to be done. Inflation has been brought down, but it remains above the target rate. If the Fed had altered its course, prices would have continued to rise. It is a delicate balance for the Fed to raise rates without damaging the economy.

The independent Fed has faced criticism but has stayed the course in tackling inflation. Prices are still higher than two years ago, but the Fed predicts they will gradually come down to the target rate by 2026. The goal is to achieve a soft landing, raising rates without causing a recession.

While there are still affordability challenges, the Fed acknowledges that there is more work to be done. Powell hopes for positive inflation reports, but if reports continue to indicate a recession, it will be a sobering reality.