Interest rates are on the rise with the Federal Reserve announcing a second consecutive rate hike of three quarters of a percent on Wednesday.
The hike comes as many economists are anticipating Thursday’s release of GDP data will reflect the second quarter of reduced economic activity
But ahead of that release, a new debate is emerging over the definition of a recession.
This is the dictionary definition of a recession according to Oxford Dictionary: “A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
But the White House argues even if Thursday’s numbers show GDP has fallen, the US isn’t in recession.
While announcing Wednesday’s rate hike, Fed Chair Jerome Powell said he agrees with that sentiment.
“I do not think the US is currently in a recession and the reason is there’s just too many areas of the economy that are performing, you know, too well,” said Powell.
In a release published last week, the White House echoed that argument.
“Both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession,” said the release in part.
During a press conference Wednesday, Florida Governor Ron DeSantis accused the Biden Administration of shifting the goal post.
“It’s basically been textbook that if you have two consecutive quarters of negative GDP growth, you’re a recession. Well now they’re trying to redefine what a recession is,” said DeSantis.
So, with the conflicting narratives, we went to Don Wiggins, CEO of the Heritage Capital Group and an economist with three decades of experience.
We asked him plainly: What is a recession?
“Well, beauty is in the eye of the beholder, and it depends on the definition,” said Wiggins.
Wiggins explained DeSantis is right; two quarters of negative growth is the common definition.
He added while its true GDP isn’t the only factor at play; the White House’s take is not exactly conventional.
“A Southern comedian I heard years and years ago said, let’s make everything legal, then we wouldn’t have any crime. So, I think what they’re doing is they’re to some extent redefining to fit their purposes,” said Wiggins.
We’ll know tomorrow how the economy fared in the second quarter, and while some may disagree on how to interpret the numbers, one thing is certain.
We can expect the cost of borrowing money to continue to rise as the Fed raises rates ever higher in an effort to fight inflation.
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