Over the past quarter century, the federal government has stepped in with some kind of emergency aid when the economy is in the tank. The next recession is likely to break away from this trend.
The dot-com crash of 2001 resulted in the Bush administration sending $300 in stimulus payments to tens of millions of households. Amid the financial crisis of 2008, 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 – when the coronavirus pushed the US into a sudden shutdown – saw the Fed and Congress prop up the economy with low interest rates, emergency lending programs, bigger stimulus checks and increased unemployment benefits.
Now, as a growing number of economists see another downturn on the horizon, a similar level of government aid is not expected – even with inflation at a 41-year high. That’s because the looming recession will be created by policymakers in an effort to fight inflation and its causes, leaving a major federal relief effort unlikely.
It doesn’t help that pandemic-era stimulus has recently come under scrutiny for fueling today’s inflation.
“Democrats setting policy along party lines decided on trillions of dollars in reckless spending,” Senate Minority Leader Mitch McConnell said in a speech that touched on inflation earlier this month.
Economists have been slower to place full blame on stimulus, citing other factors such as Russia’s invasion of Ukraine and tangled global supply chains. Still, decades-high inflation may be enough to dissuade even Democrats from pushing for aggressive stimulus.
Another headwind for added relief is the fact that Republicans are expected to take back at least one house of Congress in the midterms. That would put in power a party that was already adamant about avoiding new spending.
These factors are coming together as the U.S. appears headed for a recession sometime in 2023. Economists fear the Fed’s fastest rate hike in nearly three decades will hit the brakes on economic growth, freeze spending, hit corporate revenues and as a result in layoffs.
Still, the low likelihood of further stimulus may not matter if the economy avoids a recession or sees only a mild recession, a forecast supported by a number of high-profile experts.
Goldman Sachs wrote on June 20 that there is only a 30% chance the economy will slide into recession next year. JPMorgan has a similarly rosy outlook, although it sees a greater chance of downside over the next two years.
“There’s a lot of reason to believe this is going to be a mild recession,” Jason Furman, President Barack Obama’s former top economist, recently told Insider. He pointed to the savings accumulated by many American households during the pandemic and the lack of stress in the financial sector.
Add Comment