Is the US already in recession?
No, argues Jeffrey Frankel. Because: a) domestic demand remains strong, including in the first quarter, making it likely that the expansion is now continuing in the second quarter; b) indicators used by the NBER to identify the turning point such as real personal income less transfers, real personal consumption expenditures, real sales and industrial production, do not currently suggest a downturn.
There is indeed a sense in which high inflation can lead to recession. Sooner or later, the central bank has to raise interest rates in order to restrain demand and bring inflation down to a sustainable level, like 2 %. It is tricky to pull this off without a recession. That is the main reason why a downturn at some point in the next two years is more likely than usual. The Fed has raised the short-term interest rate by 0.75 percentage points since February, and has indicated that it will continue the tightening trend.
But the interest rate has a long way to go. For 2022, monetary policy still counts as easy. For now, economic activity will probably continue to expand.
No, the US Is Not In Recession
By: Jeffrey Frankel – Harvard University
How many times in the past has the Fed achieved a soft landing?
Alan Blinder argues that a Fed tightening cycle hasn’t ended with a serious recession since the Age of Paul Volcker. But all the cycles that ended without a hard landing happened with inflation significantly lower than it is today. Looking at history:
- Seven of the eleven episodes were arguably “pretty soft” landings: 1965-66, 1967-69, 1983-84, 1988-89, 1994-95, 1999- 2000, and 2004-06.
- In three other cases, there was never any intention to make it “soft”: 1972-74, 1977-80, 1980-81.
- In 2004-06 and 2015-19, it certainly wasn’t tight money that caused the deep recessions that followed.
Landings Hard and Soft: The Fed, 1965-2020
By: Alan Blinder – Princeton University
