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It is quite palpable that the economy is not at its best right now, especially when there are many specialists who indicate that we are close to a recession.
However, there is an expert who is not being carried away by these fears, as he says that it is not certain that a recession will occur due to two important factors.
In an interview with the Harvard Gazette, Jason Furman, a Harvard professor and former presidential economic adviser to Barack Obama, said that the current market volatility is an unavoidable consequence of the Federal Reserve’s policy of raising interest rates to combat US inflation.
Furman isn’t surprised that the stock market is behaving so erratically right now and suggests it may even have been inevitable.
“Something that affects the entire economy is interest rates. When interest rates go up, it becomes more attractive for investors to move their money into bonds and out of stocks, and that drives stocks down,” Furman said.
President Biden has made it clear that one of his top priorities is to reduce the country’s inflation rate, which last stood at 8.3%. To do this, the Federal Reserve has been progressively raising interest rates since March, a move that will surely have some repercussions on the Stock Market.
These attempts by the Fed to find a way out of inflation could end in one of two ways: a soft normalization for the economy, in which inflation falls without a significant slowdown in economic activity or a massive rise in unemployment ; the second thing that can happen is a sudden change, which would be an economic collapse.
Fortunately for the economy, according to Furman, two factors seem to be in favor of a smooth normalization, these are: consumer activity and gasoline pricesa.
Despite higher prices today, consumer activity has remained strong this year, mainly due to the large amount of savings that US shoppers have accumulated during the pandemic.
According to Furman, whether or not American consumers are able to continue shopping during this rise in inflation will be a key factor in whether or not a recession occurs.
“I am relatively unconcerned about a recession over the next year because consumer spending has remained very strong, and consumers have about $2.3 trillion of excess savings they accumulated during the pandemic that they could still spend over the next two years. years,” Furman said.
In other words, the strength of the American consumer could save the economy from a recession, due to the low unemployment rate in the country and the large savings they have since the pandemic.
The second factor is gasoline prices. And it is necessary that these are not so volatile to stabilize inflation, since the prices of practically all products rise if fuel rises.
That is why the world’s major oil producers are working to get more oil supply to lower prices. That is why Biden wants to release 1 million barrels of oil per day from the country’s strategic reserve.
As long as these two factors work in your favour, then it is possible that the economy will come out of the crisis smoothly.
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