Why does Jerome Powell enlighten us on the risks of recession?

Economic data seems to indicate that an economic downturn is inevitable. So why is Fed Chairman Jerome Powell trying to turn on Americans?

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For the past 12 months, market analysts and commentators have relentlessly predicted that the United States is headed for a recession. However, the US economy has been remarkably resilient and defied forecasts. Indeed, we now have the US Federal Reserve ruling out a recession from its current modeling, as Fed Chairman Jerome Powell pointed out at the Fed's press conference in July.

There is much more to this story, however.

For many, the fastest ever interest rate increases, record inflation and the unexpected bank collapses of Silvergate Bank, Signature Bank, First Republic and most recently Pacific Western are the main reasons to cite indicating that a recession is near.

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The technical definition of a recession is two consecutive quarters of decline in gross domestic product (GDP). Yet the real test is a significant decline in economic activity that spreads throughout the economy and includes employment, consumer spending, retail sales and industrial production.

United States GDP declined in the first and second quarters of 2022. This decline can be attributed to changes in trade and business inventories, which do not necessarily reflect underlying economic health. In addition, the labor market remains strong, consumer confidence is improving and retail sales are rising again. These are all signs that the economy remains strong, and there are differences over whether a recession is inevitable in this unusual economic environment.

In the third quarter of 2022, GDP growth was 3.2%; at Q4, 2.6%; and in Q1, 2%. As such, we were already in a technical recession. The latest GDP figures released on July 27 show that the US economy grew by 2.4% in the second quarter of this year, a slight increase.

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