US economy in recession negative GDP supporting definition. GDP of United States for January – March 2022 is -1.6% and for April – June 2022 is -0.6%. The negative GDP for two consecutive quarter in recession in economy. The two consecutive negative GDP support definition of US economy in recession.
INFLATION IN US ECONOMY
Increase inflation in United States is a major cause of concern for United State economy. Inflation was in increasing trend since 2020 when COVID 19 spread across the world. The theories that cause inflation :
(A) Monetary policy.
One of the theory says that, cause of inflation is monetary policy used by central bank of a country. Once central bank set too lower interest rates. The money is cheaply available to people that increase the demand.
During COVID 19 pandemic Federal Reserve kept the interest low. This resulted in increase in dollar in markets. Pandemic caused lower manufacturing and disrupted the supply chain. The products and services were reduced that increased the prices and caused inflation.
(B) Inflation due to demand.
The more the money available in US economy, resulted in increase in demand. In the expectation of increasing price in further make to people buy the products in advance. In this way a little bit of inflation in economy is maintained that help in growth of economy. For the same reason UNITED STATES central bank has kept a inflation target of 2%.
(C) Inflation due to shortage in supply.
One of cause of inflation in UNITED STATES and in world is SHORTAGE OF SUPPLY. In the pandemic COVID 19 , there has been less manufacturing of products. Due to supply chain disruption at the same period added on to shortage of product in stores.
When things started improving on manufacturing and supply side in the year 2022. The Russia invasion to Ukraine caused disruption in supply chain which boasted the inflation further.
IMPACT OF INFLATION ON GDP OF US ECONOMY.
Inflation in economy is one of cause of reduction / contraction in GDP. As the inflation is at level of 8.3% in US, forces central bank Fed in US to further tighten the monetary policy. The tightening in monetary policy is required to control the inflation within target of 2%.
In order to maintain healthy inflation of 2% Fed is raising the interest rates there buy reducing the liquid dollars available in market.
CAN WE SAY US ECONOMY IS IN RECESSION.
Recession is slowdown of economy of a country. One of the indicator of economy of a country is its GDP. The two consecutive negative growth of GDP indicate the economy is in recession.
There could be various factors effecting the GDP of country, few are
- Sudden change in economic condition – like the lockdown due to COVID 19 and then raise in oil prices due to Russia vs Ukraine war.
- Over expansion of credit to support the economy during expansion period – Since insufficient dollars available and due low credit available during initial stages of GDP slowdown.
CONCLUSION
With the release of GDP data for April to June 2022 which saw 0.6% decrease in GDP of US economy. The continuous two quarter GDP of united states has shown negative growth and increase in bond yield are some of financial indicator that indicates US economy is in recession. Will it be a deep recession or not will be dependent on Fed actions and other factors like supply chain disruption.
