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Biden says a recession isn't a given — but the rest of the recovery is going to be a 'haul'

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US President Joe Biden attends an Indo-Pacific Economic Framework for Prosperity (IPEF) launch event at Izumi Garden Gallery in Tokyo, Japan, May 23, 2022. Jonathan Ernst/Reuters
US President Joe Biden attends an Indo-Pacific Economic Framework for Prosperity (IPEF) launch event at Izumi Garden Gallery in Tokyo, Japan, May 23, 2022. Jonathan Ernst/Reuters
  • Biden doesn't think a US recession is inevitable, but he still sees bumps on the path to recovery.
  • "This is going to be a haul. This is going to take some time," the president said on Monday.
  • The remarks come as economists fear sky-high inflation will drag the US into a new downturn.
  • For more stories go to www.BusinessInsider.co.za.

There's no guarantee the US will soon slide into another economic downturn, but that doesn't mean the path forward is an easy one, US President Joe Biden said on Monday.

The US economy finds itself in a pivotal moment. The country has largely rebounded from the coronavirus crash of 2020, yet skyrocketing prices threaten to undo that progress. Inflation is the fastest its been since the early 1980s, and the Federal Reserve is raising interest rates at an aggressive pace to counter the problem.

Those rate increases have raised fears of a potential 2023 recession. Worried economists see little hope for a so-called "soft landing," in which the Fed can cool inflation without leading the economy to shrink.

Biden dashed some of those concerns, saying at a press conference in Tokyo that he doesn't think such a recession is inevitable. Still, the president forecasted that the rest of the rebound will have its bumps.

"We have problems that the rest of the world has, but less consequential than the rest of the world has because of our internal growth and strength," Biden said at a press conference in Tokyo. "This is going to be a haul. This is going to take some time."

The president also highlighted surging gas prices as both a dire problem and an opportunity for the US. The average price per gallon of gasoline hit a record $4.59 on Monday, and all 50 states now boast average prices above $4 per gallon, according to AAA data. Bringing prices back down to earth will take time, but it also gives the US a chance to move away from environmentally harmful energy sources and toward sustainable options, Biden said.

"When it comes to the gas prices, we're going through an incredible transition that is taking place that, God willing, when it's over we'll be stronger and the world will be stronger and less reliant on fossil fuels," the president said.

Completing the economic recovery might bring some 'pain'

The "haul" Biden described will come at a cost for many Americans. The Fed has signalled that it will raise interest rates at a faster-than-usual clip through 2022 as it looks to pull inflation to healthier levels. Rate hikes dampen inflation by weakening demand, as higher interest rates lead to higher borrowing costs.

That's already shown up in some pockets of the economy. Mortgage rates have soared at their fastest rate in modern history, climbing more than 2 percentage points in just four months. Interest payments on savings accounts have also gotten slightly larger. Over time, the Fed's fight against inflation will lead to pricier car loans, credit card debt, and bank fees.

Balancing the rate-hike strategy with steady economic growth will be "challenging," Fed Chair Jerome Powell said on May 17. The central banker has repeatedly praised the strength of the US labour market, saying its resilience means the economy can shoulder higher interest rates.

The Fed's push for tighter monetary policy will hurt affordability in some areas of the economy, but the tradeoff is worth it in the long run, Powell said earlier in May.

"There may be some pain associated with getting back to [2% inflation]. But, you know, the big pain over time is in not dealing with inflation and allowing it to become entrenched," he said in a May 4 press conference.


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