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US Meets Risk of Recession

US Meets Risk of Recession
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The United States faces a risk of recession as its battle against inflation could slow the nation’s economy, but a serious downturn can still be avoided, Treasury Secretary Janet Yellen said. US President Joe Biden said on financial, economic, and tax policy, “An American recession is a risk when the Fed is tightening monetary policy to address inflation.” “So it’s certainly a risk that we’re monitoring,” Mr. Yellen added, but “we’ve got a good strong labor market, and I believe it’s possible to maintain that.” So, the article is about US Meets Risk of Recession.

Faced with soaring inflation, it attained its highest level in 40 years in June at 9.1 percent, before dipping slightly in July; the central bank is gradually raising its key rates to ease the pressure on consumer prices while hoping the move does not derail the world’s largest economy. Commercial banks use the Fed’s key rates to set the terms of the interest rates they offer their individual and corporate clients. Higher rates reduce consumption and investment.

The challenge for policymakers is to quell inflation before it becomes dangerously entrenched, but without sending the US economy into a recession that would reverberate around the globe. “Inflation is way too high, and it’s essential that we bring it down,” Yellen said. The Fed is aiming for a soft landing that brings inflation back toward its goal of two percent without forcing a recession, a move that could cause unemployment to spike.

Jobs indeed remain tight, with a significant labor shortage. Unemployment peaked slightly in August, at 3.7 percent, partly due to more workforce participation. However, it is a sign that many workers are left on the sidelines as the COVID-19 pandemic returns to the labor market.

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