Price spikes and the Fed’s aggressive interest rate hikes sent the benchmark S&P 500 stock index to its worst performance in the first half of the year since 1970. Consumer confidence has plummeted to record lows. And economists are increasingly concerned that a recession will not only happen but soon – a threat underscored by a widely watched Fed growth tracker.

Fed Chair Jerome Powell has begun to say the quiet part out loud: The central bank is prepared to endure a recession if it means keeping inflation under control. “To make a big mistake, would be to fail to restore price stability,” he said on June 29.

While Biden has publicly supported Powell’s efforts, raising hopes of a recession is exacerbating the administration’s economic woes as Democrats head into Congressional elections this year.

“Everyone is screaming about inflation,” said Josh Bivens, research director at the left-leaning Economic Policy Institute. But “people will really hate recessions too.”

Americans are already pessimistic about the economy, even as unemployment sits at 3.6 percent – near modern-era lows – and a contracting economy will deepen the pain, bringing a wave of layoffs and pay cuts . “The mood could be too sour,” said Bivens, who argues that if the economy contracts, it would mean the Fed has screwed up by going too far in trying to curb rising prices.

Across the country, a key topic of economic conversation – high inflation – is rapidly morphing into the growing certainty of an impending recession. White House aides are ready for it. Republican lawmakers say a recession is inevitable. Wall Street analysts are increasingly incorporating it into their forecasts. And business leaders are increasingly tacitly chattering openly about an economic downturn during investor discussions and inside their companies.

Some Democrats, for their part, are still pointing to bright spots in the economy and are hoping that the central bank will manage to slow growth – and therefore bring down inflation – to propel the country into an outright recession. without leaning towards Powell says he shares that hope and has pointed to the continued strength of the economy.

“A recession would be really problematic for the American people,” Rep. Jim Himes (D-Con.) said in an interview. “Boy, are we ever too far from a recession.”

A White House official acknowledged that the economy faces a range of global risks, but said economic strength in the US – a strong labor market, consumer spending and business investment – “puts us in a better position than almost any other country.” Better than – for building your “transition to stable, stable growth with strong economic foundations and low inflation.”

“And we can do this without giving up all our economic benefits,” the official said.

But foreshadowing questions loom large: Does America need a recession to beat inflation? how soon? And will the Fed continue to raise rates even if the country enters recession until inflation retreats?

Dana Peterson, chief economist at The Conference Board, a business research group, said she anticipates a “brief yet shallow” recession to begin in the last three months of the year. But other factors could worsen the situation: If housing prices start to drop or if the war in Ukraine escalates, oil and food prices go up even more. He also said that his forecast assumes that some of the infrastructure spending implemented last year will strengthen the economy, thereby mitigating the impact of the slowdown.

“If we don’t see this, we could see a deeper and more prolonged recession,” she said at a Politico “Women’s Rule” event.

Michael Feroli, chief US economist at JPMorgan Chase, said a recession could also begin this quarter, with recent data showing consumer spending – the biggest driver of GDP – is beginning to slow.

“Things look like we are losing height very quickly,” he said.

The government confirmed last week that the economy has shrunk in the first three months of the year – and the Atlanta Fed’s economic growth tracker is pointing to rising prospects of a second-quarter contraction.

If it does, it will start an intense debate about whether the US is already in recession; Recessions are often defined as two consecutive quarters of negative GDP growth, although they are not official until confirmed by the National Bureau of Economic Research, usually long after they begin. The Bureau defines a recession as “a significant decline in economic activity that extends across the economy and lasts for more than a few months.” It does not stipulate a specific time frame of consecutive quarters.

Still, many of the factors that have contributed to lower GDP in recent months are technical in nature – companies stock up on a lot of stuff for their back rooms and therefore are not adding as much to that list – many This prompts economists to question whether this is really a recession without the economic pain of notable job losses.

The US added an average of 400,000 jobs over the past three months, a White House official said, proof that the economy is not in recession. June jobs data that is due to be released on Friday, July 8 will provide further clues about the health of the job market.

Himes, a Democratic congressman, said he thinks the Fed waited too long to raise rates – an argument many Republicans have made – but he also has confidence in what the US economy can do next.

“There is no doubt that the Fed’s interest rate hike will result in a moderation in growth,” he said. “But with unemployment at 3.6 percent, you are far from the ugly effects of the recession.”

There is no guarantee that a recession will actually reduce inflation, although the ensuing job loss will reduce consumer spending that has driven up prices. And the Fed’s moves are already generating a backlash among some Democrats.

Sen Elizabeth Warren (D-Mass.) argues that the Fed engages in aggressive rate hikes to fight the problem of inflation caused primarily by events that the central bank cannot fix – supply chain shortfalls and on Ukraine Russian War. He said the economy could suffer without much help on prices.

“Inflation is like a disease, and medicine has to be tailored to the specific problem, otherwise you can make things a lot worse,” she told Powell during a hearing. “And right now, the Fed has no control over the main driver of rising prices.”

EPI’s Bivens said he expects inflation to naturally decline for a number of reasons: high food and energy prices cutting people’s ability to buy other things, declining government spending, and slowing wage growth. have shown signs of being. He said the Fed should not feel that a recession is needed to bring prices back on heels.

“It looks like they’re locking themselves into a more rigid stance, like they’re getting closer to going too far,” Bivens said.

But Charles Calomiris, a Columbia Business School professor who served as chief economist at a bank regulatory agency under former President Donald Trump, warned that the Fed would have to cause more pain to investors than it currently is if it were to really hit inflation. intends to conquer.

He added that the Fed could deter the public from expecting ever-increasing prices if “it shows it is ready for a real recession until inflation is overcome.”