The United States (US) president said Thursday that his country’s economy is “on track”, despite GDP figures showing it had shrunk for the second time in a row — stoking fears of a recession.
“It is not surprising that the economy is slowing as the Federal Reserve acts to reduce inflation,” Joe Biden said in a statement, adding that the US was “on the right track.”
His remarks come as US gross domestic product (GDP) was shown to have contracted again in the second quarter of 2022, which has raised the risk of a recession in the world’s largest economy.
US GDP shrunk by 0.9% between April and June, having already fallen by 1.6% in the first quarter of this year.
Economists usually define a recession as two consecutive quarters of negative GDP growth.
However, the Biden Administration – which is soon facing key mid-term elections – has claimed the economy is not in recession, since other key economic indicators, such as employment, remain strong.
Stocks fell Thursday as investors reacted to news that the US economy had shrunk, with the S&P 500 down 0.4% and the Dow Jones Industrial Average dropping 0.4%.
The GDP report for the last quarter pointed to weakness across the US economy. Consumer spending slowed as North Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves.
Higher interest rates, a consequence of the Federal Reserve’s series of recent rate hikes, clobbered home construction, which shrank at a 14% annual rate. Government spending dropped, too.
The report comes at a critical time for Biden and the US.
The Federal Reserve is trying to slow the country’s economy in an attempt to combat inflation without tipping it into a recession, as consumers and businesses struggle under the weight of punishing inflation and higher borrowing costs.
On Wednesday, the Fed raised its benchmark interest rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.
In the US, the inflation surge and fear of a recession have eroded consumer confidence and caused anxiety about the economy, which is sending frustratingly mixed signals.
With the November midterm elections nearing, Americans’ discontent has eroded Biden’s public approval ratings and could increase the likelihood that the Democrats will lose control of the House and Senate.
Apart from the United States, the global economy as a whole is also grappling with high inflation and weakening growth, especially after Russia’s invasion of Ukraine sent energy and food prices soaring.
Europe, highly dependent on Russian natural gas, appears especially vulnerable to a recession.