Joe Biden’s chief economic adviser said the US economy has the “strength and resilience” to protect it from a recession, dismissing growing concerns that steep interest rate hikes to fight inflation would quash expansion.
Brian Deese, director of the White House National Economic Council, spoke to the Financial Times amid growing warning from economists and CEOs that the world’s largest economy will face a slowdown over the next year on global weakness and much tighter monetary policy.
But the Biden administration is sticking to its view that the US will see something of a “soft landing,” with a shift toward slower growth rather than a deep contraction and a slowdown in job growth rather than mass layoffs.
“When we look at where the United States stands, two things become clear. One is that we have a degree of strength and resilience in the labor market and in fiscal balance sheets and in business investment. That keeps our economy moving forward, and that’s really important,” Deese said.
“Second, we are in a stronger position than . . . Frankly, any other country that can navigate this transition without having to give up those achievements.”
Deese was speaking ahead of the midterm elections early next month with polls showing Republicans are poised to regain control of the House and possibly the Senate. He dismisses polls showing US voters disapprove of Biden’s handling of the economy. “I am convinced that good economic policy ultimately makes good policy because people are very reasonable,” Deese said.
The Federal Reserve has pushed ahead with big rate hikes of 0.75 percentage point – with a fourth consecutive hike of this magnitude scheduled for early November – but the US economy is not much in the way of monetary tightening.
Monthly job growth so far this year has averaged 420,000 jobs. Still a healthy clip, that’s down from 562,000 per month in 2021.
Inflation, meanwhile, remains rampant, with consumer price growth accelerating again last month to bring the annual rate for the “core” measure – which excludes volatile items like food and energy – to 6.6 percent.
Traders in futures markets for the federal funds rate are expecting it to peak at 5 percent next year, hinting at more big rate hikes this year and early next. Fed officials are expected to begin discussing how to slow the pace of their rate hikes while committing to keeping rates at levels slowing the economy for some time.
Fed Chair Jay Powell warned last month that the higher interest rates rise and the longer they stay at restrictive levels, the less chance the Fed will get inflation under control without causing significant economic pain.
“No one knows if this process will lead to a recession, or if so, how significant that recession would be,” he said.
But most economists now expect the world’s largest economy to slide into recession in 2023 as job losses mount.
Gregory Daco, chief economist at EY Parthenon, forecasts growth to fall by 0.7 percent next year, with the job market shedding 2.8 million jobs and unemployment rising to 5.5 percent. That is 2 percentage points more than currently. Other economists think the unemployment rate is more likely to top 6 percent.
Several high-profile US business leaders, including Goldman Sachs’ David Solomon, JPMorgan Chase’s Jamie Dimon and Amazon chief executive Jeff Bezos, have voiced their own concerns about a possible recession.
“The odds in this economy are telling you to shut the hatches,” Bezos wrote on Twitter this week.
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Meanwhile, the IMF this month downgraded its own estimate of the US economic outlook, forecasting output to remain flat this year and grow just 1 percent next year after exploding 5.5 percent in 2021.
Deese said the White House is “very focused” and spending “a lot of time” on “the global challenges that are out there” – whether it’s the war in Ukraine or the impact of China’s slowdown.
But he said “political decisions are important” on the domestic side, and Biden is trying to “focus on the things that we can do to try to . . . our prospects as strong as they can be.”
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