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Recession Bound? Commerce Report Shows U.S. Economy Just Shrank Again as Inflation Rages

A concerned trader on the floor at the New York Stock Exchange, June 16, 2022. (AP Photo/Seth Wenig)
A concerned trader on the floor at the New York Stock Exchange, June 16, 2022. (AP Photo/Seth Wenig)

A Commerce Department report out today shows the U.S. economy shrank from April to June for a second straight quarter. It contracted at a .9% annual pace, following a 1.6% drop in January through March.

The decline in gross domestic product (GDP) is raising concerns that the U.S. may be approaching a recession, even as the Federal Reserve chair Jerome Powell sought Wednesday to counter that, pointing to a robust labor market with 11 million job openings and a low 3.6% unemployment rate.

Powell said he's encouraged by such signs. "I do not think the U.S. is currently in a recession and the reason is there are just too many areas of the economy that are that are performing, you know, too well," he said.

Powell announced that the U.S. is hiking interest rates for the fourth time this year in an effort to combat soaring prices. 

Inflation is 9.1 percent right now, the highest rate in 40 years.

The Federal Reserve said it's raising its key interest rate by 3/4 of a point to slow the economy. The rate hike means Americans will pay more for mortgages, car loans, and credit card debt. The Fed hopes that in response, consumers will spend less and tamp down inflation.

"Restoring price stability is just something that we have to do," said Powell. "There isn't an option to fail to do that."

The Fed is betting it can slow growth just enough to bring down inflation while avoiding triggering a recession. It's a high-stakes risk that the country is hoping it gets right.

There are signs the plan may be working. This week Walmart lowered its profit outlook, pointing to high gas and food prices as factors forcing shoppers to spend less on discretionary items like clothing.

Economists are concerned that consumers are losing confidence, despite the strong labor market. Their fears could also affect the mid-term elections in November, increasing the probability that Democrats will lose control of the House and Senate.

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